Bullish e-commerce outlook lifts infrastructure, enabling firms

NEW YORK (CBS.MW) — Internet stocks ended the day modestly higher but shares of business-to-business e-commerce stocks locked in healthy gains following a bullish report that underscored the opportunity for commerce transactions online.

“There’s been skepticism surrounding the ability for companies to develop viable commerce models on the consumer side, yet traffic continues to improve,” said Chris Vroom, an analyst at CS First Boston, referring to the latest numbers from PC Data Online showing that traffic to consumer e-commerce sites in July grew 14 percent from the prior month.

Additionally, he said, “as commerce relates to business-to-business, there is this increasing recognition that these B2B solutions will drive substantial efficiencies throughout the enterprise.”

The reports helped to send the Merrill Lynch B2B Holdrs higher. That barometer for business-to-business software, services and online marketplaces rose 2 percent.

Meanwhile, the Goldman Sachs Internet Index inched 0.1 percent higher, after gaining 3 percent Monday and 4 percent last week (see five-day chart above).

The Amex Internet Index improved by 0.3 percent, extending Monday’s 3 percent gain.

“There’s a bit of relief that the Fed won’t raise interest rates any more, and that’s helping keep a cushion under stocks overall,” said Ken Chiang, a portfolio manager at Merrill Lynch Asset Management. But valuations are still rich and that should temper any enthusiasm to drive these stocks higher.

Commerce winners

B2B stocks heading higher Tuesday included FreeMarkets (FMKT), up 4 percent to 55 3/8; Ariba (ARBA), up 7 ½, or 6 percent, to 142 ½; Commerce One (CMRC), up 1.4 percent to 51 1/4; and PurchasePro (PPRO), up 3 percent to 40 17/64.

“Companies like Ariba and Commerce One,” in Vroom’s estimation, “will enjoy continued strong fundamental momentum and upside revenue surprise as industrial companies globally embrace their approach.”

The CS First Boston analyst also noted that a number of marketplaces are set to launch this fall with “fee structures” favoring infrastructure and e-commerce enablers.

Shares of Priceline.com (PCLN)rose ½ to 28. PC Data Online reported that total unique users to the 20 leading online shopping sites rose by 14 percent sequentially.

Priceline led on a percentage basis and on an absolute basis, gaining 39 percent with about 3 million unique visitors. Priceline’s growth is “particularly notable,” since it follows an 18 percent sequential gain in the previous quarter, said Anthony Noto, an analyst at Goldman Sachs.

Critical Path

Shares of Critical Path (CPTH) shot up 9 percent to 65. After the close, the San Francisco-based messaging solutions company said it’s buying closely-held rival PeerLogic for $400 million in stock.

PeerLogic essentially provided Critical Path with technology to integrate varying configurations of equipment, databases and software, such as digital certificates.

By folding PeerLogic into the Critical Path family, its technology, expertise and customer base will help accelerate Critical Path’s ability to sell a broader suite of products within its directory platform for messaging solutions, said Critical Path President Dave Thatcher in an interview with CBS MarketWatch.

The deal is expected to be accretive on both the top- and-bottom line in 2001, Thatcher said. The company will quantify the combined results some time in the third quarter when the deal is expected to close, Thatcher said.

That call

On Monday, Merrill Lynch Internet analyst Henry Blodget downgraded 11 out of the 29 Internet stocks he covers. The “resetting” of his ratings sent shares of eight out of the 11 lower.

Still, some question the action-oriented value of the call.

“What value does this call provide, given the level these stocks are trading at?” asked Rob Stein, CEO of Stockbrokers.com. “With an accumulate rating, he’s positioned himself in a safe place. That doesn’t help me as a trader or an investor.” Listen to an interview with Henry Blodget.
Hear part two of the interview.