first "Strong Buy" after the conference. Also quantifies Yahoo! this Q at 45K (and that's for what, 3 weeks):
CKFR - Analyst Conference; 1Q00 Revenues & EPS Tracking In-Line With Our Est.s
12:58pm EDT 16-Sep-99 SunTrust Equitable Sec. (Jeff B. Baker 615-780-9845) CKFR
SunTrust Equitable Securities
September 16, 1999 Jeffery B. Baker (615)780-9845 jeff.baker@suntrust.com
Stephen A. Laws (615)780-4132 stephen.laws@suntrust.com
CheckFree Holdings Corp. (CKFR - $39 1/4) STRONG BUY
CKFR holds analyst conference. 1Q 2000 revenues and EPS tracking in-line with
our estimates.
HIGHLIGHTS:
*1Q 2000 appears to be tracking in-line with our revenue estimate of $68.5
million and earnings loss of $0.10 per share.
*CKFR confirms that approximately 45,000 subscribers will be signed up for bill
payment through Yahoo! (YHOO) by the end of 1Q 2000. Announces additional
portal arrangement with Exite@Home (ATHM).
*CKFR expands agreement with Bank One Corp. (ONE) to include WingspanBank.com.
*By the end of FY 2000 (June), we expect CKFR to have contracts with 120 of the
top 150 billers and approximately five million subscribers.
*Our FY 2000 (June) revenue estimate of $307.9 million and earnings estimate
of a loss of $0.37 per share remain unchanged. We reiterate our Strong Buy
recommendation and price target of $60 ® per share.
EPS: 2000E 1999A 1998A 1997A
Q1 (Sept) ($0.10) ($0.05) ($0.06) ($0.19)
Q2 (Dec) ($0.11) $0.01 ($0.02) ($0.13)
Q3 (Mar) ($0.09) $0.04 $0.00 ($0.14)
Q4 (June) ($0.07) $0.05 $0.03 ($0.04)
Fiscal Year (June) ($0.37E) $0.04 ($0.05) ($0.47)
EBITDA (mil): $3.9 $18.5 $19.7 ($10.5)
Revenues (mil): $307.9 $250.1 $233.9 $176.5
Market Cap. (mil): $2,167
*Estimates do not include one-time charges.
COMPANY DESCRIPTION:
Founded in 1981, Norcross, GA-based CheckFree Holdings Corp. (CKFR) is the
leading provider of financial transaction processing services to individuals
and corporations, with an estimated 70% market share. Major services include
portfolio-management, electronic bill payment (EBP), and electronic bill
presentment and payment (EBPP).
HIGHLIGHTS:
*CKFR expects 1Q 2000 (Sept.) results to be in-line with expectations. During
CKFR's analyst meeting on Tuesday, the company reiterated its comfort level
with 1Q revenues of $65 to $70 million and an earnings of a loss between $0.08
and $0.10 per share. Our estimates for the quarter remain unchanged with
revenues of $68.5 million and an earnings loss of $0.10 per share. Although the
company is estimating approximately 45,000 subscribers from its new
relationship with Yahoo!, we have not modeled any portal subscribers until the
second quarter, with revenues from these not occurring until the third quarter.
Our 1Q estimate for the total number of subscribers is 3.12 million.
*CKFR to offer WingspanBank.com customers electronic bill presentment and
payment. In another validation of CheckFree's dominance in the electronic bill
presentment and payment industry, the CEO of WingspanBank.com, the new Internet
bank of Bank One Corp., announced that it would predominantly use CKFR for its
bill presentment and payment services. Prior to this announcement,
WingspanBank.com used M&I for its electronic bill presentment and payment
services. Although WingspanBank.com did not say much about its relationship
with M&I, it did say that they maintained relations with M&I but that CKFR
would handle the majority of their business going forward.
*CKFR goes live with Yahoo!, Excite@Home next, and others soon to follow. The
company announced that it is offering bill payment through Yahoo! and expects
approximately 45,000 subscribers to be signed up by the end of 1Q. While CKFR
is not currently offering bill presentment through YHOO, we expect this feature
will be added in the very near future. CKFR also announced that it will begin
offering bill payment through Excite@Home, with a rollout expected before
CKFR's Y2K lock-up period begins at the first of December. The realization of
revenues from these portal users will be delayed as a result of the users
receiving their first three months free as an incentive to sign up for the
service. We expect other portal relationships to be announced over the coming
months, including a possible relationship with America Online (AOL). While the
company did not confirm or deny conversations with AOL, it did say that it
continues to talk to all major Internet companies. With approximately 40% of
Internet users subscribing to AOL, an agreement with the company could prove
significant for CKFR.
*We expect CKFR to have approximately five million users by the end of FY 2000.
We believe CKFR will continue to grow traditional users by 6% and feel the
agreement with Yahoo, Excite, and other portals will enable the company to have
at least one million portal subscribers by the end of FY 2000. Thus the total
number of subscribers expected by the end of FY 2000 should be approximately
five million. This figure includes an estimated 200,000 subscribers CKFR
expects to lose because of non-Y2K compliant personal computers.
*Increased biller contracts and reduced implementation time forecasted for
FY00. Over the next fiscal year, we believe CKFR should sign an additional 55
billers for bill presentment, up from the 43 billers signed during FY99. This
would bring the total number of signed billers to 120, representing 80% of the
top 150 billers. Of the 120, it is estimated that 90 billers would be in
production, a substantial increase over the 29 in production at the end of
FY99. The ramp in billers in production should accelerate as the company
decreases its average implementation time from 120 days to approximately 90
days.
*CKFR remains well ahead of its competition. The competitive landscape has not
seen any recent significant changes. CKFR's competitors continue to make
announcements, yet no competitors are putting their announcements into action.
We believe Transpoint, a Citibank, Microsoft and First Data Corp. venture, and
CKFR's main competitor, still has only five live billers and is some time away
from being able to economically offer "pay anyone" services. With such a low
number of live billers, it appears Transpoint continues to delay its
advertising initiative, further validating the challenges the company is having
entering this space. Spectrum, formerly The Exchange, has posed no threat to
CKFR's business. We continue to be skeptical of another bank consortium quickly
and successfully moving into a new technological initiative. In fact, we
envision the future of the EBPP industry will see CKFR's competitors
outsourcing many duties to CKFR in order to expand their reach and provide
their customers with services that only CKFR can offer.
*Forecast/Conclusion. We expect the company's proven customers and sound
business model to keep CKFR ahead of its competitors in this confusing space.
The entry of new competitors is helping this industry gain recognition;
however, these new competitors make it difficult to identify the company's main
competition. Although the EBPP market is only a small percentage of CKFR's
business, it is gaining momentum. We do feel, however, that the Y2K software
slowdown is still a risk for the company. Although the company has yet to
experience a slowdown, we believe that as banks lockdown their systems,
software revenues could be negatively affected. We have already factored this
phenomenon into our revenue estimate of $307.9 million and loss per share of
$0.37 for FY 2000. We reiterate our Strong Buy recommendation.
Equitable Securities makes a market in the securities of CKFR.
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