A strategic shift by E-Loan prompted two analysts to downgrade its stock over concerns that the online lender's revenues would fall in the short term.

The Dublin, Calif., company said it would cut its famously lavish marketing expenses by 30% in the second half of the year and focus on making sure that shoppers who visit its site end up taking out loans. Though 30% of all mortgage borrowers are using the Internet to shop and research, few actually close online, E-Loan executives said.

"We believe that we have between 10% and 15% of the total U.S. mortgage and auto shopping market," said Joseph J. Kennedy, E-Loan's president and chief operating officer. "In light of that, we think it's now time to focus more of our resources and energy converting this level of shopping into transactions," rather than spending heavily on marketing and branding to get traffic.

E-Loan warned that one consequence of the new strategy would be slower revenue growth over the next six months than had been projected. For that reason, UBS Warburg and ING Barings on Friday lowered their ratings for the stocks to "hold" from "buy." UBS also lowered its target price to $6, from $15.

Friday afternoon, E-Loan was trading at $4.0625, down 3% from Thursday's close, and off 93% from its high.

"The strategy makes sense, but we're going to wait and see," said Diane B. Glossman, an analyst at UBS Warburg. "We're seeing a reduction now for benefits next year, so we're taking a bit of a 'show-me' attitude."

Mr. Kennedy said most analysts who cover E-Loan approve of the new strategy.

"They feel it's appropriate for us to narrow the revenue growth in exchange for a more rapid narrowing of the losses," he said.

Mr. Kennedy declined to elaborate on how E-Loan plans to capture shoppers, saying he did not want competitors to find out. But he cited recent initiatives - such as E-Loan Express, its no-document mortgage, and online disclosure of credit scores - as examples of things E-Loan is doing to woo consumers.

E-Loan lost $9.7 million in the second quarter, or 22 cents a share, 4 cents less than the consensus estimate from First Call/Thomson Financial. The company lost $10.2 million in the comparable period last year. Revenues were $8.5 million, up 86% from the same period last year and up 17% from the first quarter.

E-Loan said it has some $51 million cash on hand. Profitability is now expected in the first half of 2002.

E-Loan said problems with its auto loan business hurt its second-quarter results. Bank of America, which buys or brokers most of its auto loans, changed its underwriting technology, and adapting temporarily reduced the number of loans E-Loan was able to approve. The computer system that E-Loan shares with Bank of America experienced a "severe disruption" for 10 days in late May and early June, preventing E-Loan from responding to customers in a timely manner, Mr. Kennedy said. He said the problems are "completely behind us."


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