Did I beat Capt. Tony to this....
**** Hambrecht & Quist **** Hambrecht & Quist **** Hambrecht & Quist ****
Company: CheckFree Corp.
Price: 27
Recommendation: Buy
Notes: a, f
Date: 8/12/99
Strong FQ4 Results - Yahoo! Launch Imminent
The company announced strong results as revenues of $70.8M and EPS of $0.05,
after a net gain on the disposition of assets and one-time charges, beat our
estimates of $66.5M and $0.04, respectively. Note that our est. were toward
the low end of the Street range. EBP subscribers grew 6% from the prior
quarter to nearly 3M, right in line with our est. CKFR signed an add'l 15
billers in FQ4 and 43 total in FY99, bringing total billers to 64 EOFY99.
Yahoo! is currently in pilot testing and we believe an official launch is
imminent. No change in FY00 estimates. Maintain BUY
1998 A 1999 E 2000 E
Q1 EPS $(0.06)A $(0.05) $(0.10)
Q2 EPS (0.02)A (0.00) (0.12)
Q3 EPS 0.00 0.04 (0.10)
Q4 EPS 0.03 0.05 (0.10)
FY EPS (0.05) 0.04 (0.42)
FY REVS (M) 234 250 308
CY EPS (0.05) 0.04 (0.42)
CY P/E NM NM NM
FY Ends Jun Current Price $26.44
52-Week Range $6-69 Market Cap(M) $1,502
Shares Out(M) 56.8 Book Value $3.29
Net Cash/Share $0.43 3-Year EPS Growth NM
CY98 P/E-to-Growth NM
Solid FQ4 Across All Business Units. The company announced strong
results as revenues of $70.8 million and EPS of $0.05, after a net gain on the
disposition of assets and one-time charges, beat our estimates of $66.5
million and $0.04, respectively. Note that our estimates were toward the low
end of the Street range. Revenues were up 11% over the year-ago period, and
up 19% net of the impact of acquisitions and divestitures. The Electronic
Commerce division reported revenues of $46.5 million, compared to $38.9
million in FQ498. EBP subscribers grew 6% from the prior quarter to nearly 3
million, right in line with our expectation. The Investment Services division
reported revenues of $12.3 million, representing 31% year-to-year growth after
accounting for the Mobius acquisition. The number of portfolios under
management increased 13% sequentially and more than 46% on an annual basis to
end FQ4 at a total of 715,000. Software division revenues came in at $11.9
million, an increase of 5% over the year-ago period.
The Company Continues Push to Bring Billers to Market with EBP Solutions.
The company signed an additional 15 billers in FQ4 and 43 total in FY99,
bringing total billers under contract to 64 at fiscal year-end. These 64
billers represent significant penetration in several key billing segments.
Specifically, billers under contract represent 70% of U.S. telecom bills as
compared to 56% of bills a year ago, 28% of credit card bills vs. 14%, 22% of
mortgages vs. 8%, and 24% of targeted utilities vs. 7%.
Of the 64 billers under contract, 29 are live with EBP solutions and an
additional 21 are in the implementation process. The company brought 8
billers live during the quarter. The biller pipeline appears to be strong,
and the company believes it can sign an additional 50 billers and have at
least 90 live by the end of FY00. Preliminary data from the company indicate
that measurable subscriber growth can be seen with only 1-2 bills available
electronically as compared to the 3-4 bills the company had expected would be
required to stimulate consumer interest. The company feels comfortable that
it will be able to present subscribers in most US cities with at least 4 bills
each month by the end of FY00. We continue to expect the Company will make
concessions in terms of absorbing some of the additional costs to speed time-
to-market. Further, we believe the EC Solutions division will not only allow
the Company to keep up with demand, but also it will enable the Company to
monazite a greater portion of its consulting and development work.
The Company is Well-Positioned to Provide Distribution and Support
Infrastructure. In total, 350 financial institutions and non-FI distribution
points are under contract, and 34 are currently live with EBP. It appears that
consumer demand for EBP is mushrooming - a Gartner group study has found that
88% of all US households surveyed (not just those already using the Internet)
are interested in paying bills electronically. Hence, we expect that in the
next 12-18 months, both the bank and Web channels will be very actively
engaged in finding ways to participate in this burgeoning market. Note that
the recently announced competitive consortium, Spectrum (originally The
Exchange), is likely to enter the pilot testing phase this Fall. We continue
to believe that a Y2K-related biller implementation moratorium beginning in
October will prevent Spectrum from gaining any significant traction before
April 2000. We reiterate that Checkfree is likely to have 90 billers live by
June 2000, representing significant penetration in most major billing
categories and multiple presentable bills per consumer in most geographic
areas. Checkfree's pay-anyone capabilities and huge head start with respect
to billers represent, in our view, significant competitive advantages.
Yahoo! was officially announced as the portal partner today. Yahoo! is
currently in pilot testing and we believe an official launch is imminent. We
believe that the Yahoo! agreement will be a benchmark of the Company's ability
to accelerate subscriber growth. We would not be surprised to see another
major portal announcement by the end of 1999. We expect the company will
continue to invest heavily over the next fiscal year to drive faster adoption
of e-bill and presentment and to support infrastructure build-out.
No Change in Estimates - Maintain BUY. Our estimates for FY00 remain
unchanged at $308 million in revenues and EPS of $(0.42). We are projecting
approximately 1.7 million new subscribers in FY00. Should the Yahoo! deal
ramp faster than expected and/or an additional portal deal is signed, our
numbers could prove conservative.
1999 Copyright Hambrecht & Quist LLC. All rights reserved. The information
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