from wsj:
July 30, 1999
Shares of E-Loan Stumble
On Interest-Rate Worries
By LISA BRANSTEN
THE WALL STREET JOURNAL INTERACTIVE EDITION
Shares of online mortgage broker E-Loan Inc. tumbled Thursday in spite
of a better-than-expected earnings report, amid worries about a drop in
interest rates that sent the tech market lower.
In Nasdaq Stock Market trading, shares of the Dublin, Calif., company
shed 5 11/16 to close at 38 5/16, well off the high of 74 3/8. That high
was hit July 6 amid continued enthusiasm following the company's June 29
initial public offering.
The Nasdaq Composite Index fell 65.83 to
close at 2640.01 and Morgan Stanley's
high-tech 35 index dropped 32 to 1135.99.
The Dow Jones Internet Index was down
9.49 to 214.54.
After the market closed Wednesday, E-Loan
reported that revenues for the second quarter
ended June 30 were $4.6 million, up from the
$1.2 million the company recorded in the
year-earlier period but slightly lower than the
$4.8 million the company recorded in the first
quarter. In the latest quarter, the company
said it had a loss of $16.9 million, or 52 cents a share.
Frank Siskowski, chief financial officer of E-Loan, attributed the drop in
sequential quarterly revenues to an unusual increase in the first quarter,
rather than to a slackening of business in the current quarter. The company
began its first big advertising push in the fall and winter of last year and was
overwhelmed with demand that it couldn't satisfy until the first quarter of
this year, when it brought on a new operations person who helped get rid
of much of the company's backlog.
That led to a "one-time process improvement of 300 loans and $600,000"
in revenue, Mr. Siskowski said. Excluding those gains, first-quarter
revenue would have been less than that of the second quarter, he said, "so
we've had some nice growth under some quite difficult interest-rate
conditions."
In the second quarter, the Federal Reserve increased the target
federal-funds rate by 0.25 percentage point, sparking a
0.70-percentage-point increase in the interest in long-term Treasury
bonds. While an interest-rate increase would likely be bad for stocks in
general, it would be particularly hard on E-Loan because it would
probably cause a decrease in new-home sales and the refinancing of
existing mortgages.
Fears of another interest-rate increase were heightened Thursday as a key
measure of wage inflation increased more than analysts had expected. The
Employment Cost Index jumped 1.1%, above analysts' expectations of a
0.8% gain.
Michael Hodes, an analyst at Goldman Sachs & Co., which was a lead
underwriter of E-Loan's IPO, said the decrease in revenues had been
expected, adding that the company had exceeded its revenue forecast of
$4.1 million. One especially positive note, he said, was the extent to which
E-Loan managed to decrease its dependence on home refinancings, which
are even more interest-rate sensitive than loans made to purchase new
homes.
During the second quarter, 53% of the company's applications were for
purchase loans, compared to 28% in the previous quarter. Of loans
actually issues, about 18% were purchase loans, compared with 4% in the
previous quarter.
Although some of the decrease in
refinancings was due to interest-rate
increases in the quarter, there were signs of
progress on the purchase-loan side, as the
company's volume of refinancings did not
drop nearly as much as the nationwide dip in
refinancing volume. The Mortgage Bankers
Association reported that applications for
refinancings dropped 38% in the quarter,
while E-Loan's applications for refinancing
dropped 19%.
Still, Mr. Hodes said he rated the company just a "market outperformer" in
spite of his optimism. He cited expected volatility in E-Loan's shares
because only 10% of the company is publicly traded, and because of the
company's high valuation. On Monday, when Mr. Hodes issued his report,
the company was trading at 63 times his 2000 revenue estimate, though
that number had fallen to 35 times 2000 revenues with Thursday's price
drop.
Genni Combes, an analyst at Hambrecht & Quist, which was also an
underwriter of E-Loan's IPO, said she rated the company a "buy" despite
valuation worries because she is so impressed with the people leading the
company. "I wouldn't underestimate this management team," she said.
Best luck to all longs! |
