Max, it was posted on the Yahoo message board yesterday.
JPM report on CKFR part 1
by: joeyboy604 12/14/1999 10:16 am EST
Msg: 11096 of 11123
J.P. Morgan Securities Inc. - Equity Research
December 14, 1999
J.P. MORGAN SECURITIES INC. - EQUITY RESEARCH
CheckFree (BUY)
ELECTRONIC BILL PRESENTMENT BECOMING A REALITY; RAISING PRICE TARGET TO $135
Fiscal Earnings Per Share* P/E
CKFR 52-Wk ----------------------- ------------ MkCap
12/13 Rge 6/98 06/99 06/00 2Q/00 2Q/99 06/99 06/00E Yld ($MM)
---- ----- ----- ----- ----- ----- ----- ---- ---- ---- -----
$96.31 $98-17 $(0.05)A $0.04A $(0.33)E $(0.10)E $0.00A NM NM 0.0% 5,490
Calendar Earnings Per Share* P/E
CKFR 52-Wk ------------------------ ------------ MkCap
12/13 Rge 12/98 12/99 12/00 4Q/99 4Q/98 12/99E 12/00E Yld ($MM)
---- ----- ----- ----- ----- ----- ----- ---- ---- ---- -----
$96.31 $98-17 $(0.25)A $(0.16)E $0.02E $(0.10)E $0.00A NM NM 0.0% 5,490
* Excludes nonrecurring items.
Our reports and models are now available on the JPMS MorganWISE Website. Please contact your JPMS salesperson for more
information.
Yesterday, CheckFree announced Yahoo! (YHOO/$351.06/Buy) would begin offering electronic bill presentment for 37
billers via CheckFree. We believe this announcement will accelerate the electronic bill presentment market by significantly
increasing the distribution of CheckFree?s electronically presented bills. The increased distribution will in turn continue to make
CheckFree the provider of choice for billers and also spur Yahoo!?s distribution competitors to become more aggressive at
introducing electronic bill presentment capabilities. Anticipated launches of Excite@Home within the next several weeks, and AOL
(AOL/$93.94/Buy) during the first quarter of 2000, will raise the visibility of the service to consumers. This should spark more
traditional financial service providers to accelerate their efforts as well. Given the increased visibility this agreement provides to
electronic bill presentment, we are raising our price target for CheckFree from $80 to $135. While acknowledging higher volatility in
the shares, our higher price target reflects not only a very positive long-term outlook for CKFR, but also recognition that the market
handsomely rewards leadership in sectors with improving visibility, consistent execution and huge growth potential CKFR?s position
in electronic bill presentment and payment meet this criteria. Based on the improved market visibility the Yahoo! distribution
agreement provides combined with CheckFree?s strengthening leadership position, we are reiterating our Buy rating on the
shares of CKFR and raising our price target from $80 to $135. Our new price target is calculated using a 2004 EPS estimate
of $4.80, a 12.5% discount rate and a 45 multiple (See Table 3 below for a further discussion of our assumptions).
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JPM report on CKFR part 2
by: joeyboy604 12/14/1999 10:22 am EST
Msg: 11097 of 11123
Execution and Adoption
As 1999 was a land grab for distribution leadership and capturing attractive content (i.e., signing billers), we believe 2000 will be a
year of management execution and consumer adoption. Table 1 depicts the strength of CheckFree?s current market position.
Table 1: CheckFree?s Market Leadership Position
Live Billers (40) Bill Presentment and Payment Sites (54)
Signed Billers
(77 of top 150)
Bell South Yahoo! AT&T
GTE (local phone & wireless) First Union Cox Communication
MCI WorldCom Charles Schwab
Quest Telecommunication Merrill Lynch
Source: JPMS and company reports.
Table 1: CheckFree?s Market Leadership Position (cont?d)
Bill Presentment Sites Bill Payment Sites Subscribers
Yahoo! 350+ Branches 3 million (9/30/99)
First Union 23 of Top 25 US Banks 3.2 million (12/99E)
Charles Schwab 5.0 million (6/99E)
Merrill Lynch 30 million (12/04E)
Source: JPMS and company reports.
Other key metrics:
ú CheckFree?s distribution partners reach well over 100 million users online.
ú There are an additional 30 billers in implementation.
ú CheckFree currently processes over 13 million transactions per month.
New Offerings in 2000
During the analyst day in September, CheckFree began to talk about additional market it was targeting in 2000. The theme was to
change the proposition to consumers from "You've Got Bills" to "You've Got Money" on the idea of the "stickyness" of a place on
the Internet where consumers could go to "receive" payments. An example of this would be the growing popularity of online auctions
where a transaction that is agreed upon online but fulfilled with a payment via a paper check. CheckFree will leverage its payment
and tracking infrastructure too enable person-to-person electronic payments. The service is targeted to be launched in the spring of
2000 and we will look for more specifics on the offering as the launch approaches.
Valuation
Our price target of $135 is calculated using a 2004 EPS estimate of $4.80, a 12.5% discount rate and a 45 multiple. In 2004, we
estimate CheckFree will have a subscriber base of 30 million or a 33% share of 90 million households. We estimate the company will
receive approximately $45 per year per subscriber or $3.75 per month per user for both electronic bill presentment and payment
services. We estimate bill presentment and bill payment are account for roughly 50% of the monthly fee each ? for bill presentment
this would equate to approximately $0.19-$0.23 per bill for 8-10 bills per month per subscriber. Therefore, we estimate CKFR?s
revenue from the electronic bill presentment and payment market would be approximately $1.35 billion. We estimate CKFR?s
existing software and investment services business would generate an additional $300 million in revenue in 2004. The remaining
$150 million we estimate would be generated from additional services such as person-to-person payments in the auction market.
Table 2: CheckFree?s Revenue Breakdown in 2004
Revenue Breakout ($, millions) 2004 Revenue Estimate Notes:
Electronic Bill Presentment and Payment 1,350 30 million subscribers @$45 per year
Software and Investment Services Business 300 21% CAGR 99-04
New Services 150 Person-to-person payments, auction market, etc.
Total Revenue 1,800
Source: JPMS estimates.
J.P. Morgan Securities Inc. - Equity Research
Morning Meeting Research Notes
Table 3: Discounted Earnings Analysis
($ in millions, except per share data)
2002 Assumptions
Total Revenue 1,800
Operating Income 450 25% operating margin
Net Income 293 35% tax rate
EPS $4.88
PV of EPS $3.04 12.5% discount rate
Source: JPMS estimates.
(The analyst or research associate holds a position in CKFR.)
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