Unflattering article from "The Street.com"
Weak Revenue Growth Spurs a
Run on Net.B@nk Stock
By Peter Eavis
Senior Writer
7/20/99 2:13 PM ET
Net.B@nk's (NTBK:Nasdaq) stock dropped sharply
Tuesday after the Internet bank reported
weaker-than-expected revenue growth, reviving
doubts about its expansion plans.
Revenue, which frequently replaces earnings as the
focus for investors in Internet companies, totaled
$4.9 million after provisions in the second quarter,
compared with $1.6 million in the year-ago period.
That's a whopping 197% increase. But latest
second-quarter revenue fell substantially short of
analysts' projections. BancBoston Robertson
Stephens, which rates Net.B@nk a buy, had
projected $6 million in revenue, while First Security
Van Kasper, which has a sell recommendation on
the stock, had predicted $5.4 million. (Robbie
Stephens underwrote the bank's June secondary
offering. First Security and Net.B@nk have no
investment banking relationship.)
Net.B@nk didn't return calls seeking comment.
Net.B@nk, which went public in July 1997 after being
founded in February 1996, was off 3 3/8, or 11%, at
27 3/8.
The bank's shares had more than tripled this year
as investors came to believe in the bank's business
model, which, put simply, envisions the institution
rapidly attracting deposits with above-average
interest rates. Net.B@nk can offer these higher
rates, so the theory goes, because it doesn't have to
spend large sums on bricks-and-mortar branches.
Account growth remained strong. At the end of the
second quarter, Net.B@nk had more than 39,000
accounts, up 230% from the year-ago period and
ahead some 60% from the first quarter's end.
But, says First Security's Jeff Runnfeldt: "What good
is account growth if it doesn't translate into expected
revenue growth?"
Runnfeldt advised investors to sell Net.B@nk in May,
when he published a note that raised big questions
about dedicated Internet banks. He points out that
while Internet banks avoid branch costs, they are
disadvantaged by higher funding costs and
lower-yielding reinvestment strategies.
In addition, says Runnfeldt, Net.B@nk will feel the
squeeze from established bricks-and-mortar banks
that are setting up Internet services for customers.
Robbie Stephens' Bryan Keane, however, remains
more sanguine about Net.B@nk's outlook. The
disappointing second-quarter revenue growth can
be explained chiefly by the fact that the bank didn't
manage to use the deposits for higher-yielding loans
as quickly as he had assumed, he says. "The
Internet banking model is still valid," he adds.
For the second quarter ended June 30, Net.B@nk
reported net income of $768,000, or 3 cents a
share, up from $158,000, or 1 cent a share, in the
year-before period. The year-earlier period's results
exclude a $3 million tax benefit. |
