Net forums trigger revival; but yet another ad firm warns

‘B2B’ leads Net stocks’ revival

Ariba, FreeMarkets rise; ad firm MediaPlex warns

NEW YORK (CBS.MW) — Internet stocks revived with conviction Tuesday amid a round of analyst days and Net conferences. The meetings, at which Net CEOs can update the investment community, shored up confidence recently undercut by earnings warnings.

The Goldman Sachs Internet Index gained 3.3 percent, after losing 3 percent Monday.

Merrill Lynch Internet Holdrs added 2.1 percent, after declining 1.7 percent Monday and 3 percent on Friday. The American Stock Exchange Internet Index added 1.9 percent, after Monday’s 2.3 percent decline and last week’s 2 percent loss.

But business-to-business stocks were in the spotlight Tuesday. Merrill Lynch B2B Internet Holdrs rose 5.1 percent, with Ariba and FreeMarkets leading the pack.

Ariba (ARBA) rose 7.7 percent to $155. After an annual analyst day during the Ariba user conference in Miami — 5,000 partners, suppliers and other interested parties attended — analysts walked away with nothing but glowing reviews.

Ariba has emerged from a one-trick procurement pony to an end-to-end enabler of B2B e-commerce, said David Hilal, an analyst at Friedman Billings Ramsey. The company has broadened its business to include new markets and revenue streams.

But even if Ariba has more tricks in its hat, its first act is still in demand.

“We believe Ariba is very early in this market for e-commerce infrastructure,” said Chris Shilakes, an analyst at Merrill Lynch, referring to an estimate suggesting only 15 percent of the Fortune 500 have e-procurement systems in place. The midmarket is also an area of growth. According to Robert Schwartz at Thomas Weisel Partners, only 6 percent of the 10,000 largest global companies have begun e-procurement.

Commerce One (CMRC) is holding its own analyst day Tuesday in Las Vegas.

“It is common for companies to make significant announcements during user-group meetings,” said Henry Blodget, an analyst at Merrill Lynch, who expects “significant news out of both user-group conferences. To the extent that it is positive, “it may not only serve as catalysts for those stocks, but possibly follow-through to other names within the sector,” he added.

FreeMarkets continues to be Merrill’s top pick. Executives from FreeMarkets (FMKT) and VerticalNet (VERT) were slated to present at the Banc of America Securities conference in San Francisco on Tuesday.

Shares of CommerceOne rose 5.8 percent to $69; VerticalNet added 50 cents to $40; FreeMarkets jumped $4.81 to $66.69.

How ugly is it?

Online advertising company MediaPlex (MPLX) lost 23.5 percent to $6.31 after the online ad-serving company warned that it would miss quarterly numbers.

“Advertising looks ugly, especially for the small guys,” said Safa Rashtchy, an analyst at U.S. Bancorp. “But CMGI (CMGI) could also be hurt because a number of their portfolio companies are smaller ad-driven companies that could be more sensitive to this quarter’s cutbacks.”

Recall that on Sept. 7, Internet advertising agency Avenue A (AVEA) announced that it would significantly miss third-quarter forecasts. Avenue A lowered its revenue forecast to about $44 million, down from $54 million. This weakness was attributed to typical third-quarter weakness in advertising. Avenue A shares added 28 cents to $7.88. But they had traded as high as $9 at the end of August, before it warned.

Engage Technologies (ENGA), which is 80 percent owned by CMGI, saw shares decline by 5.6 percent to $8.50. The ad-serving company will report its fourth-quarter results on Wednesday. On Monday, Engage announced a deal under which Compaq Computer will incorporate Engage’s ProfileServer technology into its suite of e-business services. A significant portion of the sales derived from this pact will be recognized in Engage’s fourth quarter. Engage shares were down 5 percent to $8.59 in recent trading.

Yahoo (YHOO) gained 2.9 percent to $108.06. Yahoo CEO Tim Koogle told CBS.MarketWatch.com
at the Bank of America Securities conference that the online advertising market has not been as bad as suggested by media and some analysts. “It’s exaggerated,” he said.

Meanwhile, shares of Barnesandnoble.com (BNBN) jumped 30 percent Tuesday after the company confirmed it has replaced archrival Amazon.com as the premier bookseller on Yahoo’s Web sites, though Amazon emphasized that it had made the decision to focus its portal partnership efforts on AOL.

Optical spending intact

Shares of optical component and equipment companies were back in favor.

Sycamore Networks (SCMR) rose 5.9 percent to $106.56. Max Schuetz, an analyst at Thomas Weisel Partners, said business remains strong, despite the concerns that drove the stock down 30 percent in the past two weeks. “Carrier spending on optical, and particularly intelligent optical networking, will accelerate at the expense of older generation network infrastructure,” he said, adding that Sycamore will likely announce that is has won several major customers.

Avanex (AVNX) rose $4.81 to $125.81.

Of note …

EBay (EBAY) fell 38 cents to $65.69. The online auction giant had traded in the plus column earlier in the day, ahead of the company’s analyst meeting Wednesday.

Timothy Fogarty, an analyst at Thomas Weisel Partners, reiterated his “buy” rating, reminding investors that EBay conducts more business online than does any other online retailer. Initiatives that could be catalyts for EBay include expansion into France and Italy. EBay currently trades at 33 times its projected 2001 revenue, which Fogarty called a “deserved” premium to the multiples of other e-commerce companies.

But on a discounted cash-flow basis, assuming a 15 percent discount rate and a 50 times terminal price-to-earnings multiple, EBay should trade at $75 in the next 12 months, said Fogarty.