Cybercash Inc. is pinning its hopes for a turnaround on an expensive promotion of its digital wallet.
Until October, it is giving away its Instabuy software to merchants in an attempt to boost Internet purchasing volumes-and in the process its transaction processing business.
Instabuy simplifies Internet purchasing by requiring essential information on payment screens to be filled out only once.
The stakes are high for Cybercash, given the cost of the promotion and the company's dwindling cash supply.
"Instabuy distribution remains our top priority, and we are working aggressively to expand distribution and build critical mass," James Condon, the president and chief operating officer, said during the company's conference call about second-quarter financial results.
The Reston, Va., company said last week that it would spend up to $15 million on a branding campaign, promoting electronic-commerce services including Instabuy in publications such as The Wall Street Journal, USA Today, and The New York Times.
Because of the giveaway, Cybercash did not book revenue from Instabuy distribution in the second quarter-a factor in its falling short of analysts' earnings expectations. Revenues from Instabuy were $800,000 in the first quarter. Cybercash second-quarter revenue of $4.3 million was up 70% from a year earlier but flat compared with the first quarter.
The net loss widened to $11 million from $9.6 million a year earlier. Cybercash has scored some distribution successes, entering into agreements with MBNA Corp., which will offer Instabuy to merchants under its own MBNAbuy brand, and Bank One Corp.'s First USA subsidiary, which will market the virtual wallet to 58 million cardholders.
Cybercash has reported operating losses ever since it went public in February 1996 and is expected to continue to do so, said Ulric Weil, an analyst at Friedman, Billings, Ramsey Inc.
The operating loss, $5 million for the second quarter, is expected to increase over the next several periods to cover the advertising costs, he said.
The company also must begin making payments for its $7 million equity investment in Commission Junction, a privately held provider of Internet marketing services to more than 85,000 merchants.
Cybercash had $14.2 million of cash at the end of the second quarter, Mr. Weil said.
"I don't see how (Mr. Condon) has enough money to get him through the end of the year," he said. "By our reckoning, they will burn at least $7.5 million or so in the third quarter and another $7 million in the fourth quarter."
That estimate does not include expected payments for the Commission Junction investment, he said.
Cybercash is making a very strong wager that its marketing and distribution strategy will pay off before it runs out of cash, Mr. Weil said.
During the conference call, Mr. Condon expressed confidence that "we have sufficient cash on hand" for 1999. "I think we have demonstrated a reasonable ability to look very carefully at how we spend our cash and how we adjust that over time."
One recourse for raising capital is a shelf registration that Cybercash has filed for a secondary stock offering.
Mr. Weil said the market conditions for another "dilutive" offering are not favorable. The stock was trading Friday at $10.3125, down 31% for the year.
Though Friedman Billings Ramsey's stock rating is unchanged at "accumulate," Mr. Weil placed a "heavy caveat" on it. It assumes Cybercash's distribution and promotion strategy succeeds.
He said Cybercash's market position "seems to be dissipating" as other companies enter with competitors to Instabuy.
"They definitely have the wind in their face, not at their backs," Mr. Weil said.