PurchasePro stock punished again

David Strow

Friday, Feb. 9, 2001 | 11:16 a.m.

Heavy selling in PurchasePro stock continued Thursday and today, as an analyst downgrade became the latest piece of bad news to reach investors in the Las Vegas technology company.

Prudential Securities analyst Tim Getz downgraded PurchasePro stock from "strong buy" to "accumulate," and lowered his price target from $50 to $25. Getz also reduced earnings estimates for 2001 and 2002.

On Thursday, PurchasePro also announced it and CEO Charles Johnson had been sued by All Creative Technologies, which accused PurchasePro of criminal racketeering in an alleged scheme to steal its business plan.

PurchasePro strongly denied the allegations and said Russell Pike, All Creative's principal, is in prison and has a criminal record including money laundering, writing bad checks, theft and forgery.

The double whammy triggered a severe sell-off of PurchasePro stock, which fell 20 percent Thursday to $15.38. More than 13 million shares traded hands, more than three times the stock's average volume.

Getz called the lawsuit "frivolous."

"The plaintiff has credibility issues (in jail) and we put no merit in this case," Getz wrote. "We do believe however that this case may cause a diversion in management's time, which further increases the execution risk and subjects them to more headline risk."

But Getz said the big issue behind his downgrade was based on recent research that suggested that usage of the PurchasePro electronic buying-and-selling network is running below expectations.

"The majority (of PurchasePro clients contacted by Prudential) have indicated that leads received were low and below their expectations," Getz wrote. "Many indicated that they are not planning to renew unless business received throughout the network increased.

"As we believe adoption and usage rates are a leading indicator of the long-term success of PPRO's network, we are taking a more conservative stance going forward until we see more evidence that adoption rates are increasing."

However, Getz also noted that he expects PurchasePro to beat analyst earnings expectations of 1 cent per share for the quarter ending Dec. 31. PurchasePro announces its earnings Monday.

Because of that pending report, Chris Benyo, senior vice president of marketing for PurchasePro, said he couldn't provide detailed adoption and usage information for the PurchasePro network. But he insisted the company is "on or ahead of our plan on usage metrics," and noted that 100,000 America Online customers, primarily small businesses, gained access to the PurchasePro network in the past two months through a PurchasePro-AOL alliance.

"Usage has gone up significantly every quarter, in terms of purchase orders and bids," Benyo said.

Benyo said some customers find usage of their marketplaces below expectations at first, but only because of a "rolling lag" in getting suppliers and buyers to make the jump to an online purchasing network.

"They wait for some period of time for buyers to get organized and start buying," Benyo said. "There are some people on our network who have not gotten enough orders. I'm doing everything in my power to put buyers and suppliers together.

"To say that no supplier has problems is wrong. It's how you handle those issues. It takes time for people to learn to use something. We see a good growth path ahead."

The bearish week for PurchasePro stock began Monday when Barron's ripped the company's accounting practices and questioned its stock valuation. Despite an angry denunciation by PurchasePro calling the article "riddled with inaccuracies and innuendo," PurchasePro's stock fell more than 14 percent Monday, closing at $21.50. Through Thursday's close, PurchasePro had fallen $9.75 per share, a 39 percent decline.

Selling continued today, with PurchasePro trading at $14.44, down 94 cents.

While such a plunge over such a short period of time would be catastrophic for many companies, it is not at all unusual for PurchasePro. Like most Internet companies, a typical trading day will see the company's stock gain or lose 10 percent or more.

Prior to this week, PurchasePro had been enjoying a rally. From its Jan. 2 close through Feb. 2, the stock gained 73 percent. The selling activity of the past five days has erased those gains.

The stock remains considerably below its 52-week high of $82, reached last March.

PurchasePro employs about 500 people, with most working in Las Vegas.