PurchasePro stock rebounds on strong revenue report

David Strow

Tuesday, Feb. 13, 2001 | 11:24 a.m.

PurchasePro.com Inc., a big Las Vegas Internet company, responded to last week's stock market battering by easily topping analysts' profit expectations for the quarter ending Dec. 31.

The Internet business-to-business sales company reported earnings on a cash flow basis of $7.6 million, or 11 cents per share, besting analyst expectations of a loss of 1 cent per share. That's up from a net loss of $6.1 million, or 11 cents per share, reported in the year-ago quarter.

In response, PurchasePro stock advanced $1.39 this morning to $17.31 in very heavy trading, and was up as much as 28 percent in very early trading. The gain came on top of a 10 percent increase posted by the company ahead of the Monday afternoon earnings report.

"I don't think investor confidence was ever shaken (by events last week)," said Susan Lacerra, analyst with Jeffries & Co. "The quarterly report did a good job of showing that PurchasePro is a real company with a sustainable business model. Basically this was a fantastic earnings report."

The company posted revenue of $33.6 million, a 1,160 percent increase, and cash flow of $10.3 million.

Strong future quarters should follow, company officials said in a Monday afternoon conference call. Chairman and Chief Executive Charles Johnson Jr. told analysts he expected PurchasePro to earn at least 9 cents per diluted share in the first quarter of 2001 on revenues of more than $42 million. For all of 2001, he projected diluted cash earnings of 59 cents per share on revenues of $225 million.

"PurchasePro is just beginning to realize the potential of our business model," Johnson said. "There's a deep demand for (the company's online) marketplaces, much deeper than I think the public market perceives."

Roughly two-thirds of the company's revenues came from software licensing fees -- the sale of its electronic "marketplaces" to corporations -- while about $10 million came from fees charged to customers using PurchasePro's network. About $1.1 million in revenues came from advertising, a number the company expects will accelerate rapidly as its user base increases.

The cash earnings per share number reported by PurchasePro did not include a whopping $47 million in non-cash charges, including $30 million in strategic marketing expenses and $12 million in asset write-offs.

When those non-cash charges are included, PurchasePro posted a loss of $36.8 million, or 55 cents per share, compared to a loss of $57.8 million, or $1.03 per share, in the year-ago quarter.

PurchasePro operates what it calls a "global marketplace" -- an Internet-based procurement network bringing together suppliers with buyers. The company said its network handled 18,000 transactions in the fourth quarter, a number it has already equaled with six weeks to go in the first quarter of 2001.

PurchasePro's stock was hammered last week on a trifecta of bad news -- a downgrade by Prudential Securities, the firm's underwriter, based on concerns that many customers would not renew their contracts; a report in Barron's that questioned the company's accounting practices, stock valuation and business model; and a lawsuit by All Creative Technologies accusing PurchasePro executives of racketeering in an effort to steal its business plan.

As a result, PurchasePro shed 42 percent of its market value last week, closing Friday at $14.50. Analysts bullish on PurchasePro believe the earnings report will help reverse that trend.

"We think even PurchasePro's critics will find it difficult to dispute the strength of the PurchasePro business model given this quarter's results," Lehman Bros. analyst Patrick Walravens wrote in a research note.

In an unusual response to questions about its business model, PurchasePro executives trotted out top executives from Honeywell International Inc., Computer Associates International Inc. and Hilton Hotels Corp. on their conference call with investors and analysts. All expressed their commitment to their business partnerships with PurchasePro.

Anthony Nieves, senior vice president of purchasing for Hilton Hotels, said adoption rates by Hilton's suppliers of the PurchasePro network were "well ahead of expectations," and PurchasePro services are reducing the amount of time it took to process procurement orders.

"We're very excited to have them as a partner, and look forward to continuing our successful relationship," Nieves said.

Johnson, however, took pains to note that "our business model ... truly does eliminate dependency on individual partnerships."

"Our forecasts do not rely on the success or failure of any single relationship," Johnson said.

PurchasePro officials disclosed little new information on the All Creative lawsuit, saying only that they'd analyzed the charges and believed them to be without merit.

"It's not uncommon for a company with a volatile stock price to be subjected to ... a lawsuit where the value of the suit to the plaintiff is derived from the effect on the stock price and not the merits of the claims," said Scott Weigand, general counsel for PurchasePro.