I think Genni "gets it". No target, but a very good read.
CheckFree Hosts Upbeat Analyst Meeting - Reiterate BUY
12:02pm EDT 16-Sep-99 Hambrecht & Quist (Genni Combes) CKFR ATHM INTU YHOO
**** Hambrecht & Quist **** Hambrecht & Quist **** Hambrecht & Quist ****
Company: CheckFree Corp.
Price: 39.75
Recommendation: Buy
Notes: a, f, e
Analyst: Genni Combes 415-439-3695
Date: 9/16/99
CheckFree Hosts Upbeat Analyst Meeting - Reiterate BUY
* Focus on industry evolution, distribution, infrastructure, and new product
dev't - no changes to financial model at this time.
* Wingspan will begin offering bill payment using CheckFree in the 2-3 month
time frame.
* CKFR announced plans to launch new services in FQ3, such as payments for
auction and e-shopping, as well as to individuals via email.
* Maintain our FY00 est. of $308M in rev. and EPS of $(0.42) with approx. 1.7M
new subscribers.
1998 A 1999 E 2000 E
Q1 EPS $(0.06)A $(0.05)A $(0.10)
Q2 EPS (0.02)A (0.00)A (0.12)
Q3 EPS 0.00A 0.04A (0.10)
Q4 EPS 0.03A 0.05A (0.10)
FY EPS (0.05)A 0.04A (0.42)
FY REVS (M) 234A 250A 308
CY EPS (0.02)A (0.13) NA
CY P/E NM NM NM
FY Ends Jun Current Price $39.75
52-Week Range $6-69 Market Cap (B) $2.3
Shares Out (M) 56.8 Book Value $3.29
Net Cash/Share $0.43 Subscribers (M) 3.0
Live Billers 29
*CheckFree hosted an upbeat analyst meeting Tuesday at its Atlanta
headquarters. The company's senior management, as well as a number of outside
speakers, focused on industry evolution, distribution, infrastructure, and new
product development.
*Dick Vague, CEO of WingspanBank.com, announced that Wingspan will begin
offering bill payment using CheckFree in the 2-3 month time frame. Wingspan,
the innovative new Internet bank and a subsidiary of Bank One (a company that
no doubt knows a great deal about consumer marketing), chose CheckFree because
of a lack of confidence in Spectrum and an appreciation of CheckFree's
execution abilities. Wingspan views the bill pay service as very strategic in
terms of gathering useful and actionable information about customers and
giving customers compelling reasons to come back to the site. The
relationship would have emerged earlier, but Wingspan waited for the release
of E-Bill 3.0. We expect that the bill pay service will be prominently
featured on the Wingspan site and in Wingspan's $150 million marketing campaign.
*A key initiative for FY00 (ending June) will be improvements to the Genesis
technology platform with the goal of "dial-tone" quality (a.k.a. 4.6S).
This is significant not only because it implies less than ten minutes downtime
per week and reduces risk of late payment, but also because it puts into place
a highly reliable and scaleable infrastructure to handle both a rapid increase
in bill payment/presentment transactions as well as large volumes of
transactions away from the core business.
*Building on the investments in Genesis, the company announced plans to
leverage the platform with new services, such as payments for auction and e-
shopping, for small businesses, as well as to individuals via email. We
expect the company will launch these services in the March quarter with
several partners. We are not including any revenues from these products in
our model at this time; however, long term the potential exists for these
products to create an incremental stream of transaction revenues, thereby
diversifying base of subscription/transaction revenues.
*CheckFree continues to be aggressive in protecting its significant market
leadership across all key metrics including subscribers, billers, distribution
partners and technology infrastructure. Moreover, it is our belief that year
2000 will represent an inflection point with respect to consumer adoption of
Internet-based bill payment services, and we believe that it will be the
Internet portals that drive subscriber growth over the next 18 months. With
the launch of the Yahoo! (YHOO/$158.50/BUY) Bill Pay service last week, the
launch of the Excite(ATHM/$37.50/BUY) /Quicken.com(INTU/$99.25/BUY) offering
expected in CY99, and our belief that additional portal relationships are
forthcoming, CheckFree will occupy much of the prime real estate on the Web.
*While in the bill presentment space, the competitive environment seems to get
increasingly crowded and confusing by the day, we note that CheckFree has 64
of the top 150 billers signed (29 live) with plans to have 120 top-150 billers
signed by end of FY00 (90 live). The nearest competitor, Transpoint, has five
billers live with presentment (among these are several regional water
companies). We believe that the company has emerged as the trusted partner of
choice in the EBPP space, and the company remains light years ahead of the
nearest competitor in terms of technology and experience. As an example, the
company recently released E-Bill 3.0 with a rich feature set that includes
customer magnets (biller's pop-up ads), dynamic summary, three level security,
comprehensive event tracking, customization and multi-entry. Transpoint is in
pilot testing with its first generation billing product; meanwhile,
CheckFree's E-Bill 4.0 is coming soon. In sum, we believe that a significant
advantage of CheckFree is its end-to-end solution, which encompasses a single
integrated platform for auditing, tracking and customer care, the only pay
anyone solution in market, and a direct distribution model (biller to
customer) that is 1-2 years ahead of the competition, as well as superior
functionality (recurring payee, risk management, seamless integration with PFM
software). Moreover, we have great confidence in this management team to
continue to execute in what is shaping up to be a long and very strategic
battle.
*We maintain our estimates of $308 million in revenues and EPS of $(0.42) with
approximately 1.7 million new subscribers from the core business. Should the
portals drive more subscribers than we are currently modeling (1M for FY00),
and/or new products and services such as person-to-person payments and debit-
based e-shopping contribute significant revenues, our model could prove
conservative. We believe additional relationships will be signed throughout
the fiscal year. A key data point over the next six months will be the
success of Yahoo! in terms of signing up new subscribers. Note that portal
subscribers will get the service free of charge for three months, and as such
investors should consider both core business financial performance and portal
subscriber adds when evaluating the potential for business model leverage. We
reiterate our BUY recommendation on these shares.
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