Analysts Doubt Ariba’s Upbeat Report

Ariba (Nasdaq: ARBA) announced earnings on Thursday that beat estimates, but was nonetheless downgraded by half a dozen analysts who raised questions about the company’s earnings and growth rate.

The business-to-business (B2B) software provider reported that revenues for the first quarter of 2001, ended December 31st, were US$170.2 million, up 625 percent from the the same quarter last year.

The company said that net income for the quarter, excluding certain non-cash charges, was $14 million, or 5 cents per share, beating analysts’ estimates of 2 cents. During the year-earlier quarter in fiscal 2000, the net loss was $5.6 million, or 4 cents.

The company’s stock dropped nearly 20percent Friday, down from $43.36 at Thursday’s close to $35.13.

Downgrade Fever

One way Ariba hopes to build new revenue streams is by turning away from lifetime licenses to term licenses. However, analysts reacting to the earnings have reportedly said that the new licensing practice is creating ambiguity in the company’s actual growth rate.

Robinson Humphrey downgraded the company from outperform to neutral, while Friedman Billings moved the stock from buy to accumulate.

Deutsche Banc Alex. Brown downgraded the stock from strong buy to buy, and analysts at ABN AMRO Wasserstein Perella and SG Cowen also downgraded the stock.

Examining the Books

Despite Ariba’s claim that it was the first B2B player to achieve profitability, the accounting of its non-cash charges did much to affect the company’s results.

When the company’s non-cash charges related to its acquisitions are added into the equation, Ariba had a net loss for the quarter of $347.6 million, or $1.48 per share.

The firm’s current loss is significantly greater than the loss of $10.3 million, or 7 cents per share,reported in the first quarter of fiscal year 2000.

On the Upside

However, despite the sour melody played out the Street, Morningstar.com analyst Joe Beaulieu said Ariba is “definitely on the right track.”

“If any B2Bs are going to be big winners, it will be Ariba and Commerce One,” Beaulieu told the E-Commerce Times.

According to Beaulieu, Ariba is “well positioned to take advantage of the coming boom in B2B infrastructure spending.”

Looking for Boom

A recent report by Jupiter Research predicted that companies around the world will increase their spending on B2B e-marketplaces from $2.6 billion in 2000 to $137.2 billion by 2005.

Spending in North America alone will grow from $2.1 billion to $80.9 billion, the firm said.

Beaulieu believes that the company has a solid business model. “It will just take them a while to grow” into their valuation, he said.

Looking Forward

Ariba said that it expects its second quarter revenues to be in the $180 million to $185 million range, and earnings per share to be 6 cents. Analysts were previously estimating earnings of 3 cents per share.

For the year, Ariba is forecasting revenues in the $780 million to $790 million range and earnings per share of 25 to 26 cents. The analysts’ consensus is 16 cents per share.

The company also said that it currently has $408 million cash on hand.