Stock Watch: Ariba Gains on Analyst Recommendation

Ariba, Inc. (Nasdaq: ARBA) was up 2 1/8 early Monday at 123 13/16 after US Bancorp Piper Jaffray started coverage of the stock with a buy recommendation.

“E-commerce is revolutionizing interactions among businesses and is now one of the top corporate initiatives in the business world,” the firm said. “B2B commerce is measured in the trillions of dollars, and the opportunity to improve the automation, information flow and collaboration of its participants is relatively unmatched in terms of scope or potential value creation.”

“We believe Ariba represents one of the B2B arena’s more compelling long term investment opportunities, given its market leadership position in the B2B e-commerce space, said Jon Ekoniak, senior business commerce and software analyst at the firm.

“While B2B e-commerce is still in its infancy, Ariba is now building a strong, global business to provide the infrastructure needed to power the business world’s e-commerce initiatives, both within the enterprise and within marketplace environments,” Ekoniak said. “If Ariba can leverage its early leadership position into a longer term presence, we believe that the company will provide meaningful returns to its investors.”

Even as it capitalizes on the B2B boom, Ariba is able to avoid some of the pitfalls experienced by other software makers, Ekoniak said. Instead of relying on license fees alone, he said, the company’s business model includes revenue-sharing agreements for the marketplaces it helps create.

“This means that as Ariba saturates a market with its software, the future revenue stream gets stronger, whereas a typical software company loses its ability to grow once market saturation is achieved,” he said.

Ariba has an alliance with fellow B2B software maker i2 Technologies (Nasdaq: ITWO) and IBM (NYSE: IBM). Earlier this month, i2 and Ariba announced an agreement to resell each other’s products.

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