Off-Topic Sort of, but makes one wonder where we are headed with latest acquisition. Food for thought.
businessweek.com
Playing E-Commerce through E-Payment
Stocks
As bill-paying and other financial transactions spread through
cyberspace, some companies will cash in
A somewhat obscure software maker with the eye-catching ticker symbol
"EPAY" (calling to mind the soaring share price of Internet auction outfit
eBAY), has been one of the most actively traded stocks of the past week.
EPAY is Bottomline Technologies, which makes financial software for
businesses and went public on Feb. 12 at $13 a share and traded in the
low 20s for the better part of a month. But thanks to positive analysts'
reports on Mar. 10 that tied the stock to electronic commerce and
attracted the enthusiasm of day traders, Bottomline rocketed to a high of
$98 on Mar. 16. Then traders started selling en masse. "Get out now!!!"
read one posting on an Internet message board that morning.
EPAY closed Mar. 17 at $77 5/8 -- not bad considering one analyst set a
price target of $45. "Obviously there has been a great deal of ebullience
because EPAY is a play on Internet payments," says Gary Craft of
BancBoston Robertson Stephens. He's sticking with his buy rating
despite the steep rise. "We're not going to disagree with the market. This
is all new revolutionary stuff."
EPAY's recent run seems a sign that investors' are eager to find a way to
play the growth in online banking and bill-paying. But dozens of other
companies are also providing banks and businesses the software and
services they need for Internet payments. And some may ultimately
prove better positioned than Bottomline to benefit from the trend.
NARROW SEGMENT. In fact, Bottomline may well turn out to be one of
the Internet's one-week wonders. While it is profitable and analysts
predict rapid growth, the company is involved in a fairly narrow segment
of the E-commerce picture. Its software allows companies to manage and
execute all kind of payments, including making electronic payments to
employees and vendors. Along with transitioning customers away from
issuing paper checks, it also lets companies access payment information
over the Internet -- so a salesman on the road can order a check printed
remotely, for example. Large corporations have long used electronic
payments (think how long direct deposit has been available). Although
there's room for growth, Bottomline's core business is "fairly old hat in
some sense," says Octavio Marenzi, research director at Meridien
Research in Newton, Mass.
The truly fast growth lies with providing software and services that allow
ordinary folks to pay bills online, says Marenzi. "Licking stamps and
filling out checks will be a thing of the past," says Drew Cupps, manager
of Strong Enterprise Fund (SENTX). In three years, he thinks a majority
of people under age 30 will pay all their bills online, and in five years he
thinks it'll be the norm.
Although electronic banking has been around for years, mainly in the
form of dial-up services offered through personal-finance software
packages like Intuit's Quicken, in the past few months its momentum has
been building. As the Internet has become a mass medium, banks have
gotten serious about offering the service, say analysts. Chase launched
an improved free Internet banking service on Feb. 24. Citibank will unveil
its new Web site and online banking service this summer. "Probably 8 of
the top 15 banks will be rolling out Web-based online banking in the next
9 to 12 months," says Stephen Franco, an analyst with Piper Jaffray.
Online stock trading has paved the way for consumers to manage their
finances online, he says. And costs should come down. While many
banks still charge up to $10 a month for online banking, Chase's service is
free.
MORE BUSINESS. Bill presentment, where customers receive their bills
online as well as pay them, is also just starting to gain momentum. MCI
WorldCom announced E-billing on Feb. 24, and AT&T is expected to
offer it soon. A Mar. 3 study by Killen & Associates found that
numerous financial, utility, and telecom companies are moving to provide
Internet billing and payments. This, too, will mean more business for
some E-payment companies.
Unfamiliar with EPAY, Cupps is playing the broad theme by buying
CheckFree Holdings (CKFR), the leader in online billing and
check-processing services, for his fund. Banks contract with CheckFree
to process all the payments their online banking customers make. When
the check is for a company or individual that isn't linked to an electronic
network (about 50% of checks currently, down from 75% a year ago), the
company will cut a paper check and mail it out. CheckFree is paid by the
bank for each online customer. Franco estimates it has 75% to 80% share
of a market that is so far 95% untapped.
CheckFree is also a leader in what analysts call the "next big thing" --
distributing bills online. It allows banks to aggregate customers' bills,
including from credit cards, department stores, and the phone company,
so customers could review and pay them online. Franco rates it a strong
buy and has a price target of $53. The stock closed Mar. 17 at $39 15/16.
CheckFree's future is far from certain, however. Some banks are setting
up their own systems to try to avoid paying CheckFree for its services.
"It may be a victim of its own success," says Marenzi.
BIG DEALS. Franco's other recommended stock in the sector is Security
First Technologies (SONE), which sells software that allows banks to
provide home-banking services to customers. While some 40 to 50
companies do roughly same thing, its superior product has won some of
the biggest banks as customers, he says. The stock has doubled in the
past six weeks on news of deals with Royal Bank of Canada and alliances
with Anderson Consulting and Hewlett-Packard (HWP). Security First
closed on Mar. 17 at $66, still short of Franco's $80 price target.
Marenzi, whose firm advises corporations on which software to use,
thinks Security First has some technical problems and says its rapid
growth is due mainly to personal relationships top management has been
able to tap -- which it can't do forever. Given its rapid price rise, he says,
"I would expect it to fall back to earth." He thinks Broadvision (BVSN)
and Edify (EDFY), two companies that also sell Internet commerce
software to banks, are better positioned currently.
What about EPAY? Craft continues to call it a "very solid, very valuable"
company. But he also recommends FundTech (FNDTF), which is similar
to EPAY. FundTech has risen from $19 1/4 on Mar. 9 to a recent high of
$33 1/8 on Mar. 16. "FundTech is benefiting as much as EPAY from the
migration to Internet payments, but it hasn't gotten in the limelight," says
Craft. He thinks EPAY got all the attention because it's a new IPO. But
you have to wonder if its ticker symbol just might have had something to
do with it.
Stone is an associate editor who covers the markets at Business Week
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