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Technology Stocks : CheckFree (CKFR) -- Ignore unavailable to you. Want to Upgrade?

To: TLindt who wrote (5670)	7/7/1998 8:38:00 PM
From: BeverlyB7	Respond to of 8545

This is from the Yahoo board today: ABN AMRO INITIATES WITH A STRONG BUYnewtockfr (28/M/Atlanta, GA) Jul 7 1998 9:50AM EDT We recommend purchase of the shares of CKFR with a price target of $37, based upon 46x our FY 2000 EPS estimate of $0.80. We expect CheckFree to generate consistent revenue and earnings growth. Almost 90% of the company's revenue is recurring. Incremental revenue is projected to generate 50% operating margins, as the company benefits from significant economies of scale. Additionally, processing and customer care costs should decrease as a percentage of revenue once CKFR's Genesis project is complete, and as a greater percentage of transactions are processed electronically. We project an operating margin of 11% in FY99, with a significant expansion to over 20% in FY 2000. We also believe that the company can grow earnings at a 45% rate for the next few years, assuming 35%+ revenue growth and continued operating margin expansion. Risks MSFDC is offering an EBPP service that targets precisely the market that CheckFree's E-Bill service targets. Microsoft will develop Internet-ready software, while FDC provides strong relationships with banks and billers as well as expertise in operating large payment processing systems. Moreover, the biller segment of EBPP is crowded. There are numerous companies (e.g., Princeton Telecom and International Billing Solutions) targeting billers to improve processes, modify internal systems or develop electronic statement solutions. Additionally, we expect to see new EBPP competitors appear. We believe it is likely that most billers ultimately will select multiple vendors to satisfy their varied needs. Another potential competitive threat within electronic banking is from banks that develop their own proprietary in-house home banking solutions. This threat depends on whether banks believe they can generate enough volume to warrant the significant capital investment required to implement an in-house solution. As the EBPP market develops and volumes expand, scale should provide CKFR with a competitive advantage. Therefore, while we would not discount MSFDC as a serious competitor -in fact, we think MSFDC could penetrate CKFR's 75% share of the electronic bill payment market-we also believe that the potential electronic banking market is so vast, and poised for sufficiently rapid growth, that both CKFR and MSFDC should enjoy significant growth opportunities. Rate of Growth of Electronic Banking Market Electronic banking is a relatively new and emerging service sector, and therefore the pace of market expansion is highly unpredictable. Growth may be inhibited by consumer's concerns about privacy and security issues. CheckFree's strategy is to allow financial institutions to maintain their customer relationships. Therefore, CheckFree is dependent on financial institutions to not only adopt the new technology but to aggressively promote these services to their customer bases. In the case of the E-bill market, CheckFree depends on the acceptance of billers as well. While the pace at which the company's services may be adopted is unpredictable, we believe that any potential impact will merely affect the timing of the company's growth Additionally, Year 2000 technology issues are currently garnering a disproportionate share of the discretionary R&D budgets of financial institutions; delaying development of new technologies such as electronic banking. Industry sources estimate that U.S. banks will spend almost $20 billion this year on technology spending. Of this amount, we estimate that 25%, or close to $5 billion, is available for discretionary spending such as Y2K, data warehousing, electronic banking, etc. We believe that electronic banking development will rapidly accelerate during 1999 once the majority of the Y2K work