ML:4Q 1999 Results:Big Volumes,Customer Wins
Transaction and Customer Upside
Summary
CyberSource reported 4Q 1999 results which exceed all
metrics. In addition to delivering significant upside to our
revenue and transaction volume estimates, the company
was well ahead of our assumptions for new customer
additions, bringing in close to 450 new customers in the
quarter, a dramatic acceleration from the approximate 270
added in 3Q. We believe this bodes well for CyberSource
as it enters 2000. Some of the customer additions in 4Q 99
are significant “bricks and mortar” customers, which will
be announced publicly in the near-term.
We have adjusted our models to reflect the ExpressGold
acquisition, which was completed in early January. With
this acquisition, CyberSource adds on-line gift certificates
and other related transaction services. Our new LPS
estimates reflect expected dilution of $0.10 to $0.15 per
share in 2000 from this acquisition. We believe the
benefits from ExpressGold will begin in 2H 2000, with an
increasing number of premium priced services in the
overall revenue mix.
CYBS has consolidated recently following the post-holiday
e-tailer selloff and the pressure from the post follow-on
lockups of restricted shares being released. While some
overhang remains from these lock-ups in the near-term, we
believe the long-term prognosis for CYBS is bullish,
especially given the apparent momentum building in new
customer adds and ramping transaction volumes, and the
successful addition of high value add applications
(eg ExpressGold). We believe our revenue models to be
conservative and reflective of continued healthy upside. We
maintain our position that CYBS is an outstanding proxy for
investors who believe in the continuing explosive growth in
both B2C and B2B transactions over the Web.
4Q 99 Results
CyberSource beat consensus LPS estimates by $0.04 and
ML estimates by $0.02, with a combination of higher than
expected revenues and solid operating expense controls.
The company reported Q4 FY99 EPS of a loss of ($0.27)
on sales of $5.0 (+354.7%) million beating Merrill Lynch
estimates of a loss of ($0.29) on revenues of $4.5 million.
This was the fourth quarter in a row of accelerating yr to yr
revenue growth. The company reported 21.7 million
transactions in the quarter, up 439% from the year ago
quarter and 84% from the previous quarter. Total
transactions processed for FY99 were 47.2 million, up
from the 8.6 million transactions in FY98.
The customer install base grew by 50% sequentially, to over
1300, including major “bricks and mortar customers” to be
named shortly. P&G, Amazon and Stamps.com were new
customers of note in the quarter. Beyond.com transaction
flow, which caused some concern among CyberSource
investors, dropped to less than 10% of revenues in the
quarter. Net loss for the quarter was $6.2 million as the
company continues to build out its infrastructure. Gross
margin was 20.2%, in line with our 21% estimate. Operating
expenses were modestly below our $8.5 million estimate
and the net loss narrowed to $6.2 million vs our projected
$6.8 million.
Outlook
CyberSource management reiterated its comfort level with
estimates for 1Q and CY 2000. We are making a few
adjustments to our model to reflect the dilution from
ExpressGold, a more aggressive customer acquisition ramp
and some planned discounts of the company's services
overseas to bring that price structure more in line with
domestic pricing. The net result will be an addition of
approximately $2 million to revenue in 2H 2000 and
$6 million in revenue to CY 2001. 2000 LPS will increase
from $1.01 to $1.14 and 2001 LPS will increase from
$0.46 to $0.50, reflecting the investments in the
ExpressGold infrastructure in 1H 2000, with CYBS still
reaching profitability in 2H 2001.
We believe CyberSource delivered a strong 4Q 1999
performance, with promising developments in the
OEM/reseller channels. The tightening partnership with
Visa is interesting, as only 2% of Visa network transactions
originate from the Web, and are ramping quickly.
The pricing adjustments in Europe are consistent with our
model, and transactions are running well above the
assumptions of our prior model. We believe CyberSource
can process over 130 million transactions this year, up
from our prior projection of 107 million. |
