BRAD: CKFR: "EXCHANGE" NOT EXPECTED TO COMPETE IN BILL PAYMENT
(First Call 06/24 09:34:09)
09:29am EDT 24-Jun-99 J.C. Bradford & Co. (BOB BOLEN (615) 748-9653) CKFR
J.C. Bradford & Co. Research Note
June 24, 1999
CHECKFREE HOLDINGS CORP.
(CKFR-$28 3/4-OTC)
"Exchange" Not Expected to Compete in Bill Payment; Stock
Believed Oversold
Rating: Buy Robert V. Bolen, CFA
(615) 748-9653
FY June EPS: 1998 1999E 2000E
Shares O/S 1Q ($0.06) ($0.05)A
55.5 mil. 2Q ($0.02) $0.00A
3Q $0.00 $0.04A
4Q $0.03 $0.05
Full Year($0.05) $0.04 ($0.25)
* Three big bank customers to create bill-presentment
"exchange," which should simulate Ebill presentment industry,
which in turn should help CheckFree on Ebill payment
* Competition in bill presentment not an original thought; banks
not expected to move into bill payment
* CKFR launching third-generation Ebill capabilities and will
remain leader in full end-to-end EBPP capabilities
* Volatility likely to remain a hallmark of this stock, but
believers should use weakness to add to or establish
positions, in our opinion
CheckFree traded 16 million shares and was off $9 after Chase
Manhattan Bank, First Union, and Wells Fargo & Co. announced the
formation of a new company that will seek to control the flow of
electronic bills. Dubbed "The Exchange," this new for-profit
company proposes to establish a directory and routing "switch"
with electronic look-up facilities to present electronic bills to
its member consumers. This service will be offered to member
banks; they in turn will attempt to sell to billers. The banks
see this as a natural attempt to broaden their Treasury
Management services (lock box, etc.) to corporate accounts.
CheckFree provides this functionality within its Ebill-
presentment service and the market took the announcement as the
company's death knell. We beg to differ and believe the market
has overreacted. We recommend using this reaction to add to or
establish positions.
Rebuttal #1: CheckFree is preparing its third-generation Ebill
service offering for market delivery, which encompasses full end-
to-end bill-audit trail functionality, one-to-one marketing
capabilities (designing a specific ad based on the consumers'
buying habits), bill parsing, HTML conversion consulting, and a
strong switch-service capability. (Billers want partners with
large distribution capabilities; CKFR has compelling offering
with most of the banks and likely the portals). The company has
been successful in the marketplace, signing up over 50 of the
top 100 billers to date versus only a few for the banks. We
believe CheckFree will continue to win its fair share in the
marketplace given The Exchange is at least one year away (we
think two or more years) from entering the market in earnest.
Furthermore, CheckFree is preparing to spend and develop
aggressively to capture additional biller business.
Rebuttal #2: The banks use CheckFree for electronic bill payment
(representing about 20% of CKFR's electronic-commerce revenue)
and we see no indication this consortium has plans to recreate
this capability, which encompasses a sophisticated remittance-
processing engine and end-to-end customer-care facilities. To the
extent The Exchange captures bill-presentment market share and
the bills are presented to bank consumers, CheckFree will
continue handling the payment side, which is the source of
essentially 100% of its ecommerce revenue. If The Exchange is
successful it will expand the overall market, which will benefit
CheckFree.
We detest the timing of this announcement and what it did to the
stock. Management denies any knowledge of this development and we
believe them. The company has been competing with banks' treasury-
management activities for over a year, and the banks' effort to
keep quiet seems reasonable to us. We believe several factions
will develop over time and they all will have to work together
(read interoperate) for a robust EBPP industry to develop.
CheckFree has indicated it will link into The Exchange if they
have bills that need presenting to Exchange bank consumers, and
The Exchange will absolutely (if they win any billers) have bills
that need to be routed to consumers controlled by CheckFree banks
(or nonbanks for that matter).
We believe this announcement does little to tip the balance of
power against CheckFree, but hopefully it will invigorate the
market for electronic bill payment and presentment. Clearly, the
market does not readily understand the company's strengths in
remittance processing, customer care, and end-to-end bill-
presentment services. We recommend purchase at the current price
and believe the stock will recover relatively soon. The portal
business will be launched within several weeks.
Additional information available on request
The information contained herein has been derived from sources
which we believe to be reliable but has not been independently
verified by us. This material does not purport to be a complete
statement of all data relevant to any security mentioned and
additional information is available on request. The opinions
expressed herein reflect our current judgment and are subject to
change without notice. Partners and/or employees of this firm
may from time to time have either a long or short position in the
securities mentioned. Orders to buy any security are not
solicited and will not be accepted in any state where sales of
such security are not permitted.
J.C. Bradford makes a market in this security. This analyst holds
shares in this security.
First Call Corporation - all rights reserved. 617/345-2500
END OF NOTE
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