Digital Insight Corp.’s fourth-quarter results challenged increasing anxiety about the Internet banking software sector.

Though the Calabasas, Calif., company posted a loss that was slightly more than expected, it had an increase in customer accounts that surpassed even the high end of its own forecasting.

The company said Thursday that it had signed up 108 new financial institution clients in the fourth quarter, beating its forecast of between 80 and 100. The company’s stock closed Friday at $14.75, down 3% from a week earlier.

Revenue rose 147% in the quarter, to $18.2 million. But the fourth-quarter loss of $5.4 million (19 cents a share), though narrower than the year-earlier $6.8 million (30 cents), was 2 cents wider than the average estimate of analysts polled by First Call Corp., an American Banker affiliate.

“We continue to see strong demand for both our Internet banking and cash management products,” said Kevin McDonnell, chief financial officer and senior vice president of finance and administration at Digital Insight. “End-user growth continued to be strong, with over 200,000 additional end-users in the quarter, bringing our total … to approximately 1.55 million.”

The news was a particular relief because analysts had soured on Internet banking software providers after some of Digital Insight’s competition stumbled in the fourth quarter.

In late November, Atlanta-based Netzee Inc. announced that its fourth-quarter loss would be 17 cents per share, compared with the 13 cents consensus of analysts. The company also predicted 2001 revenue would be between $32 million and $36 million, down from previous expectations, and that it would not see positive cash earnings until the first quarter of 2002. Analysts had been expecting the company to generate a profit by the third quarter of 2001.

Netzee executives blamed a slowdown in sales and implementations during the second half of 2000 caused by lower confidence among customers spooked by the decline in Internet stock prices, particularly Internet banking issues.

In mid-December, Cavion Technologies, Inc., an Englewood, Colo., provider of online financial services for credit unions, filed for bankruptcy. Another competitor, Online Resources Corp. of McLean, Va., announced Jan. 17 that it plans to eliminate about 9% of its work force, or 23 jobs, as part of a plan to become profitable.

“There was definitely some anxiety in the marketplace going into Digital Insight’s announcement,” said Michael Hodes, an analyst with Goldman Sachs in New York.

“People were using the weakness in some of the smaller competitors and some of the tidbits of information that had surfaced from these competitors over the last month or two to argue that Digital Insight was also going to be weak,” Mr. Hodes said. However, “there was a lot more momentum in the performance than people had anticipated,” he said of Digital Insight.

Digital Insight’s chief executive officer, John Dorman, said the volume of new customers for his company indicates that the market is not soft, just that the cream is rising to the top.

“In general the anticipation was soft demand in the marketplace for retail Internet banking,” Mr. Dorman said. “But we haven’t seen any evidence of that. Demand appears to be at least as strong as it has ever been. There is a clear acceptance that every bank will need to have an Internet offering to remain competitive.”

What has changed, he said, is that a once-fragmented market consisting of several small vendors is undergoing a purge in which only those firms that can achieve scale will survive.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.