By Mike Trigg
August 24, 2000

Ariba Inc.

Ticker: (Nasdaq: ARBA)
Phone: (650) 930-6200
Website: www.ariba.com
Price (8/23/00): $144 7/8

How Did It Double?

Watching B2B providers climb back from their tumble in early spring, one should feel obligated to stop and look at Sunnyvale, California-based Ariba (Nasdaq: ARBA). B2B stocks were beaten down earlier in the year (perhaps wrongfully so) in part because of a negative sentiment among investors toward dot-coms and e-commerce. But times have changed in this sector, and market leader Ariba has nearly tripled since mid-April.

The roller coaster ride that resembled Superman the Escape (North America's fastest roller coaster located in Valencia, Calif.) began for Ariba as valuations in the B2B sector skyrocketed as it became the latest investing "sure thing" amid unrealistic profit expectations. In March, Ariba started falling from its 52-week high of $183 11/32 and hit $50 1/4 by mid-April.

Since then, the comeback for Ariba has occurred for several reasons. The depleted stock price had offered investors an attractive buying opportunity. Few ever doubted the management and business plan of Ariba, but many had difficulty justifying a position in the company because of the Goliath-like valuation it had attained.

A number of recent e-commerce alliances provided the stock with additional momentum. In July the stock jumped on news that the WorldWide Retail Coalition -- made up of retailers like Target (NYSE: TGT), Kmart (NYSE: KM), and Best Buy (NYSE: BBY) -- had chosen IBM (NYSE: IBM), i2 (Nasdaq: ITWO), and Ariba to run the Worldwide Retail Exchange (WWRE), a B2B website due out later this year. Ariba and IBM extended their partnership further this month when Transplace.com, an Internet-based global logistics alliance formed by the six largest transportation companies in the U.S. announced it had selected the two companies to construct and run its recently launched e-commerce website.

And finally, Ariba's most recent earnings report, which included a 578% increase in revenues from the same period in the previous year, blew away street expectations and was seen as an affirmation to those who have long believed in the company. Many who had begun to doubt the survivability of the sector and its key players have jumped back on the bandwagon and again believe that Ariba and the B2B market are here to stay.

Business Description

Ariba is a provider of intranet and Internet-based e-commerce B2B solutions for operating resources. The Ariba B2B Commerce Platform allows buyers, suppliers, and commerce service providers access to a unified electronic economy to realize their e-commerce opportunities. The flagship solutions within the platform are Ariba Buyer, Ariba Marketplace, Ariba Dynamic Trade, and Ariba Commerce Services Network.

Ariba provides its customers significant savings through economies of scale, faster cycle times, and improved efficiencies in information and processing flow. It has more than 20 customers in the Fortune 100 and has strong grasp on key sectors such as technology, healthcare, financial services, energy, and telecommunications. In addition, the company has been expanding at a high rate through joint ventures and acquisitions in order to maintain its leadership position in an increasingly competitive industry.

Financial Facts

Income Statement
12-month sales: $161.3 million
12-month income: ($33.0 million)*
12-month EPS: ($0.18)*
Profit Margin: N/A
Market Cap: $34.3 billion
(*Excluding non-operating charges)

Balance Sheet
Cash: $215.4 million
Current Assets: $302.4 million
Current Liabilities: $232.2 million
Long-term Debt: $0.5 million

Ratios
Price-to-earnings: N/A
Price-to-sales: 155.06

How Could You Have Found This Double?

You could have taken part in this double (and more) if you stood firm in a belief that there was a future in B2B and that Ariba was going to lead the way. Ariba's recent earnings report proves there is an onslaught of companies Internet-enabling their businesses to take advantage of e-commerce opportunities. E-commerce budgets are huge, and Ariba is the consensus market leader with a full line of products and services.

Ariba's overall strategy could have pointed you to its turnaround. The rivalry between Commerce One (Nasdaq: CMRC) and Ariba has been well publicized, and there is value in assessing the companies' different strategies. Ariba sells the software enabling businesses to buy and sell goods on the Internet, while Commerce One partners to create the exchanges. The result of this has been more revenue (licensing and support) for Ariba early on, while Commerce One waits for the exchanges, like a fine wine, to come of age.

Some might be wondering why all of this matters. After all Commerce One does have a sound strategy and the revenue should be there over time. The significance is Ariba's strategy has afforded it a large market capitalization, and it has the necessary dollars to continue its aggressive strategy of acquisition and investment, while others don't.

Where to From Here?

As Paul Commins (TMF Buster) recently commented in his Rule Breaker "break down" of Ariba (by the way, he crowned it the Rule Breaker Top Dog in B2B), there is still an element of uncertainty surrounding the B2B industry. The jury is still out on e-commerce, and the widespread market acceptance and demand for Ariba's products is still unknown.

Also, Paul notes that there are still anti-trust issues looming. Recent rulings by the European Union and Federal Trade Commission initially favor the use of B2B marketplaces, but that certainly doesn't mean that Big Brother (no, not the TV show) won't come calling.

Nevertheless, it's clear that Ariba is just getting started. It continues to increase its market share and has strong fundamentals. Its growing customer base, excellent management team, increasing partnerships, and market maker status provide it with an excellent opportunity to continue to grow and prosper..

If a Fool feels strongly in the future of the B2B market, and this one does, Ariba is one to comsider. If you're a Fool with doubts, then check out Nico Detourn's (TMF Nico) research report on B2B E-Commerce in which she discusses the existing opportunities for the industry that will allow Ariba and others to radically transform the economy.

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