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Technology Stocks : E Loan Inc -EELN -- Ignore unavailable to you. Want to Upgrade?

To: Mr. Tomatohead who wrote (486)	7/30/1999 10:22:00 AM
From: Bipin Prasad	Read Replies (1) \| Respond to of 817

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!