Online Resources Corp. and Digital Insight Corp. offer online banking software and services, and both target small to midsize banks, but they are not alike when it comes to their capital plans.
Digital Insight has an abundance of cash and is in the midst of a $25 million stock buyback.
Online Resources, which has less than a quarter of Digital's revenue, has far less cash on its books and plans a secondary stock offering to raise capital for acquisitions.
"We see several such opportunities in the marketplace at the moment," said Catherine A. Graham, Online Resources' executive vice president and chief financial officer, in a conference call with analysts last week.
Why the divergence? Gwenn Bezard of AITE Group LLC in Boston said Online Resources is too reliant on bill payment through banks and would serve itself well by making more complementary acquisitions like the one it completed in December. It spent $15.3 million for Incurrent Solutions Inc., which sells online credit card software.
Online Resources, of Chantilly, Va., has assets of $43 million, including $6.3 million is cash. It expects to raise $35 million to $40 million by selling 4.1 million shares in a public offering. Bill payment brought in 68% of its fourth-quarter revenue.
Jeff Stiefler, Digital Insight's president and chief executive, said during a conference call with analysts on Thursday that Digital ended the fourth quarter with the strongest balance sheet in its history.
The Calabasas, Calif., company has assets of $377 million, including $75 million in cash. Mr. Stiefler said in an interview that this gives him the option of evaluating acquisitions or repurchasing shares, but for now he prefers the latter.
The stock buyback program was announced Oct. 21. Digital has already spent 15% of its repurchase budget to buy 232,000 shares.
Mr. Bezard, a research director at AITE, said online bill payment "is not a core product" for Digital Insight, which uses Marshall & Ilsley Corp.'s technology subsidiary, Metavante Corp., to process bill payments for its banking customers.
CheckFree Corp. is easily the dominant company in bill-pay, and Online Resources is "far from denting" CheckFree's share in the bank bill-pay market, Mr. Bezard said, so it needs to consider expanding into new businesses.
Matthew P. Lawlor, Online Resources' chairman and CEO, said the Incurrent acquisition could offer more room to grow. Though there are 50% more active credit cards than active checking accounts in the United States, he said, about a third of households actively view their banking accounts only, against only 23% who do so for card accounts.
Mr. Lawlor said he would consider an acquisition in any of several related markets, including another bill payment provider.
Mr. Bezard agreed that "the card issuers are a bit behind the retail banks" in rounding out their Web sites. "There are clearly some opportunities" for vendors that can help issuers close that gap, he said.
Online Resources reported that its fourth-quarter net income rose 185%, to $1.2 million. For the year it rose 80%, to $5 million.
Revenue in the three months rose 17%, to $11.4 million. For the year it rose 10%, to $42.3 million.
Digital Insight's fourth-quarter net income fell sharply, to $3.9 million. A year earlier a one-time tax benefit of $29.6 million helped the company post earnings of $35.5 million. Operating income (which does not reflect interest and taxes) rose 18% in the fourth quarter from a year earlier, to $7 million.
Revenue for the quarter rose 16% at Digital, to $49 million. For the year it rose 22%, to $189 million. Mr. Stiefler said he was pleased with the growth in operating income and that he expects an increase in bill-payment revenue.
"We've achieved these results with bill-pay penetration of only 3% of potential end users," he said. "If we do nothing else but ride the wave of bill-pay adoption, we have a very significant growth opportunity."
Digital Insight also said last week that it had started a distribution partnership with Fiserv Inc.'s Fiserv SourceOne, which serves the larger banks in the Brookfield, Wis., company's core processing client base.
Under the deal Fiserv will offer Digital Insight's cash management, online banking and lending software.
