Belinda ....NTBK SONE here are some interesting thoughts I came across regarding the I-NUT BANKS from the RAGING BULL REPORT.
I am also holding NTBK big time at 46 and 41!! This one will be OK and also look at SONE another WIN WIN situation at these prices.
Best wishes,
Burjis
THE RAGING BULL'S CYBERSTOCK INVESTOR REPORT
"Your Weekly Internet Stock Newsletter"
June 4, 1999
"Now Read By Over 130,000 CyberInvestors Weekly"
Editor: Matthew W. Ragas
ragingbull.com
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***RAGAS SPEAKS FOR THE WEEK***
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Selling The Guns
Swashbuckling online broker E*Trade (EGRP) announced plans Tuesday to
acquire online bank Telebanc Financial (TBFC) for $1.8 billion in stock.
The deal will pair the Web's second largest online broker with the U.S.'s
largest online bank. Rest assured that traditional banks will now take
serious notice of the online banking space.
Executives at Chase Manhattan (CMB) and Wells Fargo (WFC) may not have
heard of small upstarts like Telebanc and Netbank (NTBK), but they have
definitely heard of online trading giant E*Trade. With the millions in
advertising E*Trade has shelled out in the past year it would be almost
impossible for any banker not to be endlessly reminded that "one day we'll
all invest this way." Earlier this week, E*Trade launched an aggressive
print ad campaign that featured the line, "sorry bankers, the brokers
should have warned you." Hmm, looks like someone is tweaking the lion's
nose. Yes, the online banking wars have clearly begun.
Buying Rather Than Building
The Telebanc deal isn't so surprising when you consider that E*Trade has
already branched out from its brokerage roots by partnering with other
online companies to offer insurance and lending services. E*Trade Chief
Executive Christos Costakos has long proclaimed the company is much more
than an online brokerage and fully intends to be the Web's financial
services leader. However, I had expected E*Trade to build their own online
banking operation from scratch, rather than buy up an existing player.
I can't fault Costakos for doing the deal. He paid roughly a 40% premium
to Telebanc's closing stock price last Friday, but when he's paying with
Internet paper, what's the difference. Closing the deal and quickly
integrating both companies' online operations is far more important. As
we've seen time and time again on the Web, speed to market means
everything. By acquiring Telebanc, E*Trade becomes one of the top forces
in online banking almost overnight.
Not To Be Caught Off Guard
Unlike many of the traditional brokerage houses, which were caught largely
unprepared for the explosion in online trading, off-line banks have spent
the past few years preparing for the advent of online banking to hit the
mainstream. Already, large banks like Wells Fargo, Bank of America (BAM),
Bank One (ONE) and Citigroup (C) have spent millions building their online
banking operations, and many have migrated their off-line customer base to
the Web. First Union (FTU), for example, now has more than 700,000 online
customers, making Telebanc's 50,000 customers look like chump change.
The customer will definitely come out on top as the online banking war
heats up. More competition invariably means lower fees and higher rates
for online customers. However, an even larger winner lurks in the form of
the software and consulting firms that provide applications and expertise
for enabling off-line banks to offer online banking services. After all,
someone has to supply the ammunition for this online banking explosion.
The Arms Merchants
While, I can't easily predict which banks will win the online war, the
leading arms merchants should win either way. At the head of the list is
Securities First Technologies (SONE), the leading supplier of brandable
Internet applications that enable financial institutions to offer a variety
of Internet banking services. Securities First, or S1, is no stranger to
the online banking space.
In 1995, the company launched the Web's first Internet bank, called
Security First Network Bank. Then last March, S1 decided to sell its
online banking operations to the Royal Bank of Canada (RY) in a $20 million
deal. At the time, S1 was already providing financial software to a
variety of banks that wanted to set up online operations. The sale of its
online bank operations allowed the company to focus all of its energy on
becoming the leading online banking software and consulting firm for
financial institutions.
Financial Software Powerhouse
Let's fast-forward a few months. S1 was dominating the Internet banking
applications market, but was looking to further solidify its position. So
in mid-May S1 announced plans to acquire FICS and Edify Corp. (EDFY), two
competing providers. The two acquisitions, which are valued at a combined
$1.4 billion, eliminate two existing competitors and poise S1 to dominate
the market with the most complete applications package available.
How can I be so sure? Consider that the combined S1 will have
relationships with 35 of the world's 100 largest financial institutions.
The newly combined client list will include financial powerhouses like Bank
of America, Bank One, Chase Manhattan and Citibank. The company will
combine Edify's expertise in small business banking and bill presentment;
FICS' worldwide sales force and strong European bank client base; and S1's
existing leading corporate and retail online banking products. By
acquiring two of its largest competitors, S1 should enjoy better pricing
leverage for its software. After all, when you're one of the only online
banking software providers left on the block, it's harder for your clients
to haggle over price.
Under The Hood
Pro forma revenue for the combined company was $150 million last year,
$24.2 million of which belonged to S1. Piper Jaffray analyst Stephen
Franco estimates the new firm will have sales this year between $180
million and $200 million.
S1 reported a first-quarter 1999 loss of $3.3 million, or 13 cents a share,
compared with a loss of $8.1 million, or 39 cents a share, a year ago.
Revenue for the latest quarter was $12 million, a 250% increase from the
year-ago period.
Even more promising than the company's narrowing losses was the fact that
gross margins increased to 40% from a gross margin of 0% in the first
quarter last year. The number of accounts powered by S1 technology
continues to surge, totaling more than 692,000 at the end of the March.
That's an increase of almost 600% from a year ago. Clearly, S1 is heading
toward profitability. Consensus estimates show S1 posting a loss of 12
cents a share next quarter, but turning a profit in the first quarter of
2000.
New Investors
S1's strong position in the online banking space has recently attracted a
number of well known technology and banking names looking for a piece of
the pie. In February, S1 announced marketing alliances with
Hewlett-Packard (HWP) and Andersen Consulting. Both companies will promote
S1's online banking software to their clients. In addition,
Hewlett-Packard announced a $10 million equity investment in S1 and
Andersen Consulting decided to take a $4 million stake in the company. The
alliances give S1's software powerful direct distribution from two of the
world's largest technology consulting sales forces.
Personal finance software maker Intuit (INTU) also announced a partnership
and bought a 2.5% stake in S1 for $50 million last month. The investment
gives Intuit an option to increase its stake to 9.9% at a later date. The
deal will integrate Intuit's popular Web-based personal finance products
into S1's existing software. The deal appears to be a win-win for both
parties. Intuit gains new distribution of its Web-based applications to
numerous online banking sites, while S1 gets a variety of "sticky"
applications that should help increase the time spent on the online banking
sites of its clients.
Online Banking Growth
If online banking follows research projections, S1's market could be at the
beginning of a very steep growth curve. Cyber Dialogue estimates about 6.9
million people banked online at the end of last year. The research firm
expects that number to grow to 24.2 million online banking users in the
U.S. by 2002, a particularly relevant number to S1 because the company
collects a monthly fee from many of its banking clients based on the number
of end users.
IDC also estimates that $326 million in online banking applications will be
sold this year in the U.S., a 250% increase from last year's numbers.
Adding further fuel to S1's growth prospects are numbers released in
February by the American Bankers Association. The ABA estimated 625 of the
nation's 9,000 banks currently offer some form of online banking, while IDC
estimates 7,200 banks will purchase Internet banking applications this
year.
Most impressive is an estimate from Dove & Associates that the worldwide
Internet banking applications market will reach $2.7 billion by 2003. Will
online banking take off and live up to these projections? It's hard to
say. One thing for certain is that E*Trade's Telebanc acquisition will
force other banks to increase their online spending. With sales last year
of only $24 million and a market cap of $967 million, is S1's Friday
closing price of 38 1/4 justified? That's your decision to make.
All I know is that I'd rather be in S1's position, providing the swords and
shields to the gladiators in the online banking war, instead of being
thrown into the trenches to fight against powerhouses like Chase and
Citibank. I'm sure S1 hopes the battle goes on for eternity - a nice
thought for consumers and perhaps an even better thought for S1
shareholders. Cyberinvestors: May the best bank win.
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