fool.com: News World: Harbinger: Good Things To Come

Harbinger: Good Things To Come

By Dave Marino-Nachison (TMF Braden)
September 13, 1999

It's shaping up to be a banner 1999 for the companies that make e-commerce software. Powered by the ever-growing consumer and corporate acceptance of electronic commerce, this sector's stars have provided investors with impressive gains with more seemingly on the way heading into the new millennium.

Today, business-to-business e-commerce software developer Harbinger Corp. (Nasdaq: HRBC) said it expects EPS to beat Wall Street expectations in both Q3 and Q4.

"We do not foresee any negative trends in revenues and expenses that will cause us to question financial expectations for the fourth quarter," said Chairman and CEO C. Tycho Howle. "The evidence suggests that the market for our core business-to-business e-commerce is strong and indications are that our growth in these products and services is accelerating."

Howle didn't provide much more insight into the company's outlook, but today's announcement nevertheless restores hope that the company will at least post year-over-year earnings growth: Wall Street was looking for Harbinger to underperform last year's $0.34 per share figure by two pennies despite optimistic second-half projections.

Always digging for dirt, I asked a friend -- who just happens to be an Anderson Consulting, uh, consultant -- what the hot software was at his company these days while on walkabout this past weekend. (We NewsWorld types aren't allowed to rest for a second, even on vacation.) Sure enough, it was the e-commerce stuff: he mentioned Ariba Inc. (Nasdaq: ARBA) and Siebel Systems (Nasdaq: SEBL) specifically.

And earnings are expected to improve at both of those companies in the next two quarters: losses are seen narrowing at upstart Ariba (a summer IPO), while analysts are looking for nearly 53% second-half growth at Siebel.

As such, the shares of all three companies have been bid up considerably so far this year -- with Harbinger showing the least pop on a percentage basis.

A quick margin comparison shows that as of June 30, Ariba was sporting the best gross margin numbers this fiscal year, beating Siebel by a hair -- although Ariba's figures were for three quarters rather than two at Siebel and Harbinger.

But Ariba has yet to turn a profit as costs associated with getting its name out -- not to mention heavy amortization expenses associated with stock-based compensation -- have eaten up the company's operating income.

Of course, these companies aren't really pure competitors (not that that situation couldn't change with one press release): Ariba specializes in operating resource management, for example, while Harbinger offers an e-commerce portal among other products and services.

"There's certainly a shift to make a focus to automate and to provide the benefits of business-to-business e-commerce in your organization," Ariba CFO Edward Kinsey reported in a recent StockTalk interview with the Fool's own Brian Graney. "Suppliers and buyers both are all focused on that automating, capturing, spending, integrating information, all of that that comes into what we refer to as business-to-business e-commerce."

That there are so many ways a company can join the e-commerce software fray not only speaks to opportunity but to fragmentation, something touched on in the aforementioned StockTalk. With indications of fast-paced growth across the sector and consolidation a possibility if, for instance, some of the larger enterprise software companies decide to look for new revenue streams, investors would do well to give these and other companies a closer look.

Related Links:
Harbinger Web Page
Harbinger Message Board
StockTalk, 8/31/99, Ariba Inc.

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