FreeMarkets Sinks on Results, Downgrades

FreeMarkets, Inc. (Nasdaq: FMKT) fell US$5.69 to $21 in the first few minutes of trading Tuesday, even after the company reported better-than-expected results for the fourth quarter.

Reports said the company's auction volume, while strong, was below earlier estimates, as a slowing economy hurt the industrial companies that use FreeMarkets' services. Analysts at Goldman Sachs and Merrill Lynch reportedly downgraded the company's stock following the quarterly results, which were released after the close of trading Monday.

FreeMarkets, which operates online marketplaces for businesses, said revenue for the quarter rose 340 percent from a year earlier to $34.5 million, while gross margins advanced from 39 percent to 50 percent.

The company posted a loss before extraordinary items of $10.4 million, or 27 cents per share, which was 4 cents better than analysts had expected. A year earlier, the loss before items also totaled 27 cents per share.

"FreeMarkets continues to gain strength, and our team continues to execute and scale our model," said chief financial officer Joan Hooper. "I am particularly proud of our ability to increase gross margins significantly."

FreeMarkets said it conducted 2,432 auctions during the quarter, representing $3.5 billion worth of goods and services. There were 100 customers using the e-marketplace in the quarter, up from 34 in the year-earlier period.

The number of suppliers participating in FreeMarkets' business-to-business (B2B) marketplace also rose to 9,300, with 2,300 new suppliers coming on board during the quarter.

In November, FreeMarkets announced a joint venture with Mitsubishi. Under the terms of the deal, FreeMarkets owns a majority stake in the venture, with the Japanese trading company providing significant capital. The two companies plan to develop online marketplaces and related services for Japanese businesses.

FreeMarkets is based in Pittsburgh, Pennsylvania. Its services are currently available to companies in North and South America, as well as Europe and Asia.