The B2B Analyst - U.S. Bancorp Piper Jaffray's Weekly B2B Newsletter, Volume 1, Number 35 -.

Business Editors & Analysts

MINNEAPOLIS--(BUSINESS WIRE)--Sept. 22, 2000

The B2B Analyst Is Published Each Friday And Delivered Free To Subscribers Via e-Mail.

Jon M. Ekoniak, 650-233-2278, [e-mail] Timothy M. Klein, 612-303-5544, [e-mail]

To subscribe, go to http://www.gotoanalysts.com/b2bsubscribe/

UPCOMING EVENTS

BOSTON - Upside e=B2 Forum October 1-3, 2000 Sheraton Boston Hotel, Boston

Please join us for an exciting new conference produced by Upside Events -The e=B2 Forum - taking place October 1-3 in Boston. U.S. Bancorp Piper Jaffray's B2B Analysts, Jon Ekoniak and Timothy Klein, will co-host the event, which brings together the brightest minds and the most intelligent thinking in e-business for an insiders' look at the next wave of B2B.

Speakers for the conference include Dave Perry of Ventro (a), Chuck Donchess of Commerce One (a,c), Pat Toole of IBM B2B Solutions, Pehong Chen of BroadVision (a), and Frank Moss of Strategic Software Ventures.

For more information and to apply to attend the conference, go to http://www.upsideevents.com/eb2/pj

Each Friday morning Jon and Tim conduct a live interview with RadioWallStreet. To listen live, go to radiowallstreet.com at 9:00a.m. PST. Interview archives are also maintained on the RadioWallStreet Web site.

September 22, 2000

In This Week's B2B Analyst: I. INDEX - U.S. Bancorp Piper Jaffray B2BEC Index II. Market Insight - B2B Hits South Beach And Vegas III. B2K IV. Weekly News V. Filings & Pricings

I. INDEX - U.S. Bancorp Piper Jaffray B2BEC Index

Close: 150.60 Past week: -6.05 (-3.86%) Past month: +17.33 (+13.00%) Since inception (7/1/99): +50.60 (+51.00%)

Despite all the hype around eLink 2000 and LIVE Miami 2000, it was another rough week for B2B. The Index was down 3.86% and several stocks took big hits, including Healtheon (a), ICG (a), Clarus (a,c), and Neoforma.

II. MARKET INSIGHT - B2B Hits South Beach And Vegas

As if the sunshine, craps tables, and Latin rhythms were not hot enough, Las Vegas and Miami each received full helpings of B2B mania this week, with Commerce One and Ariba hosting eLink 2000 and LIVE Miami 2000, respectively. Among other things, conference attendees were treated to management briefings, customer workshops, and keynote speeches by the likes of Lou Dobbs and Tom Peters. Overall, both events were celebrations of the B2B market's strong momentum; even Jim Belushi showed his bullishness on the sector, providing music and entertainment at both events! But all hype aside, we believe that the events were a testimonial to the phenomenal growth we have seen as of late in the B2B market, from which both companies have benefited tremendously.

There were numerous announcements during both events. Ariba discussed its Network Connect program, provided a demo of the new functionality within Ariba Buyer 7.0, and touted its joint i2 (a)/Ariba win of Transora, a CoBAM (Consortium of Brick-And-Mortar players) formed by more than 50 leading consumer products companies such as Coke (a), Hershey, and P&G. Commerce One announced that its partnership with SAP was official, provided an overview of the partnership's MarketSet and Enterprise Buyer products, and announced the partnership's win of eHitex, a high-tech CoBAM founded by Compaq (a), HP, Solectron (a), and others.

Two major themes that emerged from the events were the focus on private marketplaces and direct procurement. While the early days of B2B saw more focus on many-to-many models, such as public exchanges and more recently, industry consortia, as of late there has been much talk about one-to-many models, or private marketplaces. Both Commerce One and Ariba are attacking this segment aggressively, with Commerce One attempting to leverage the installed enterprise customer base of its partner SAP, and Ariba looking to build upon its many wins within the internal enterprise procurement market. This segment is now forecast to represent a major chunk of B2B e-commerce activity; according to the Gartner Group, in 2004, B2B e-commerce within extranet and private marketplace environments is expected to represent more than 50% of the total B2B market. Direct procurement has long been recognized as a larger, yet much more complex market than indirect procurement; Commerce One estimates that this portion represents approximately 60% of the overall B2B market opportunity. Again, both companies are eager to play in this segment, with Ariba recently acquiring SupplierMarket.com, and Commerce One building upon the experience and expertise of SAP.

Overall, the tone of both events was extremely upbeat, reflecting the growth of both companies' businesses as of late. Ariba and Commerce One's collective revenue in recent quarters has provided clear evidence of the tremendous demand that exists from both enterprise customers and marketplaces, and the thousands of potential customers in attendance at both events seemed to signal that there is no slowdown in sight. In our view, we are still in the early stages of the B2B market's evolution and there is plenty of room for additional growth. Ariba put this fact in perspective, estimating that of the world's top 3,000 revenue-generating organizations, less than 10% have invested in an enterprise e-commerce solution.

Given all of this, it appears clear that both companies have bright futures. But many investors are still grappling with the question of which company will emerge as "the winner." We believe that it is still too early to say, and believe that both companies will enjoy great success in the next couple of years. Yet we believe that the two companies are becoming even more direct competitors by the day. While in the past many have seen Ariba as more focused on enterprises and Commerce One on marketplaces, we believe that it is clear from the i2/Ariba/IBM and Commerce One/SAP partnerships and their recent moves that each company is looking at the entire B2B landscape. Moreover, it is clear that each company's ultimate goal is own the entire "network" of B2B e-commerce participants, be they enterprises or marketplaces. Tune in next month for comments on each company's quarterly results, and watch this column in the future as the battle heats up further.

III. B2K - The State-Of-The-Art And Science Of Valuations

Measuring worth is always a fascinating exercise and particularly so in the world of technology companies. Investors, companies, and observers all exert great energy to determine what a company or stock is worth. Over the past few years, this discussion has risen to new levels as valuations have entered the stratosphere. The resulting challenge for the Street has pushed analysts to new levels of spreadsheet gymnastics as contenders strive to create a killer "maneuver" not unlike the efforts this past week in Sydney, Australia. At the core of the challenge is the fact that the vast majority of the high-flying technology issues (while generating tremendous revenue growth) have not proven their capabilities at generating profits. With such reduced visibility on profitability, the Street has had little choice but to resort to using a comp group based on multiples of forward revenues to value these stocks. This methodology has repeatedly been declared as "fundamentally unsound" by many critics, yet today remains the most common tool for understanding relative valuations. One of the most popular alternatives has been the practice of discounting future earnings or cash flows, a la the biotech sector. This latter approach is certainly nobler, but the challenge lies in determining the viability of such extended projections that might require five years or more for meaningful profits to discount.

To gain some perspective, we looked back in recent history to identify precedents for today's current elevated valuation environment. With our focus on e-business applications, we collected data for more than 50 leading software companies and compared their revenue multiples over the last 10 years. What we found was somewhat surprising and revealing. While some of the current valuation levels were found in companies soon after their IPOs; in general, we are in relatively uncharted territory. Largely across the board, valuations in this sector, and in tech, hit an inflection point beginning around 1997. Consequently, we have a situation in which Microsoft is valued at twice its revenue multiple of 10 years ago, despite growing two-thirds more slowly. Similarly, market leaders such as Seibel, i2 Technologies, and BroadVision currently trade at levels comparable to their IPO days despite growth rates that are more than 50% lower. We believe that the Internet is largely responsible for the rise in valuations through two main effects. First, the Internet has created a technology revolution that has spurred the growth of countless new businesses never before possible. Second, the Internet has improved the flow of investment information allowing everyone the opportunity realize a "ten-bagger" with the next eBay (a) or Ariba; and as a result, the large inflow of money chasing a relative few names has brought us to the valuations we see today.

So now that we have traced what seems to be the starting point for what has become, in many respects, a public venture capital market, we can begin to posit some hypotheses. During the early to mid-nineties, the predominant business minds turned its attention to re-engineering, efficiency, and quality control, all in an effort to increase profit share. Adrian Slywotzky, a partner with Mercer Management Consulting, declared in the business best seller, The Profit Zone, that "market share was dead," compellingly supported by historical data that correlated a company's rising stock value with rising profits, and not market share. Around 1997 was when the Internet rose to prominence, beginning with Amazon's (a) IPO and Yahoo!'s (a) spectacular rise in stock price, as investors learned of new markets that became bigger (almost by the minute) as analysts introduced dueling forecasts.

With the Internet as the new business frontier and the public markets providing the funds for the land grab, market size and share have risen to new prominence. While market size estimates vary in quality, the Street has a keen focus on revenues and revenue growth. This focus, combined with a huge investor appetite for high-flying Internet IPOs, has resulted in the phenomenon we have observed over the past few years--public venture capital. This environment of largely untested and unproven models receiving public investment funds has corrected quite a bit in the past six months, but that restriction in new issues has also served to put pressure valuations for the existing leaders until more quality companies can pass the higher IPO threshold.

The good news is that with this year's market correction (given today's potential tech turbulence--it remains a bit early to put this in the past tense) we have seen a renewed sense of urgency around profitability. This makes it increasingly more feasible to calculate more reliable discounted valuation models and focus on a Company's earning potential. While the opportunity to base valuations at some level on earnings potential is encouraging, this only explains the baseline. Companies will receive discounts or premiums to this baseline due to a number factors including management quality, market size/share, clarity of the "story," levels of competition, and visible near-term catalysts. While visibility on profits should help with the science, interpreting these various factors is the art.

IV. WEEKLY NEWS

-- Compaq signed a two-year sales and marketing deal with Commerce One to speed
development and growth of online exchanges. Under the agreement, Compaq will be
an authorized reseller of Commerce One products while Commerce One will make
Compaq its preferred hardware provider for computer servers running Windows
NT-based servers.

-- Builders FirstSource, Building Materials Holding Corp. (#), Carolina
Holdings, 84 Lumber, Lanoga, Payless Cashways, and Wickes are joining forces to
establish an e-marketplace.

V. FILINGS & PRICINGS

Filings

IPO

-- Plumtree Software (PLUM) is a provider of infrastructure that

brings together a wide range of information in a corporate

platform.

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