Electronic commerce companies are not making much money, but that has not prevented some from investing in or acquiring others.
Undaunted by a disclosure June 29 that second-quarter revenues would fall short of projections, Cybercash Inc. said last Monday that it will make an equity investment in UUcom Inc., an Internet engineering company in Alexandria, Va.
Last year Cybercash lost $26 million on revenues of $4.5 million. Company officials declined to reveal the size of the investment.
Verisign Inc. of Mountain View, Calif., announced last week that it bought privately held SecureIT, an Atlanta-based Internet security company, for $69.1 million in stock. It was the first acquisition for the digital certificate company, which went public in January after losing $19.2 million on $9.4 million of revenue in 1997.
Cybercash stock fell 0.1875 cents Friday to $12.125. Verisign ended the week at $44, up $1.
Cybercash, an Internet payment company based in Reston, Va., had said it would rein in expenses and focus on revenue-generating projects. The company decided to invest an undisclosed amount in UUcom, rather than enter into an alliance or contractual relationship, because it thought it could potentially profit from UUcom's success, said James Condon, Cybercash chief operating officer.
UUcom will design and carry out an expansion of Cybercash's network, and upgrade its Internet architecture and operational facilities. The new system would improve reliability and response times, said Maureen Loftus, senior vice president in corporate marketing and strategy.
Cybercash is girding for growth. It signed more than 600 new merchants in June, and its transaction volume has increased 20% to 30% a month, Ms. Loftus said. Currently, 4,500 merchants use the service, which processes 2.5 million transactions a month.
Analysts generally approved of the investment, saying it will improve Cybercash's infrastructure. "It's important to have cost consciousness, but they can't be penny-pinching or they'll forfeit opportunity to someone else," said electronic commerce analyst Gary Craft of BancAmerica Robertson Stephens.
The UUcom purchase will give Cybercash access to secure networks and to Internet service providers, said Paul Merenbloom, senior software analyst with Prudential Securities Inc. He said the investment should not dilute earnings.
Raimundo Archibold, vice president at J.P. Morgan Securities, was skeptical. "It strikes me as a company floundering, trying to establish a business plan to take to investors to recapitalize the company," he said.
Verisign will use its SecureIT purchase to improve its infrastructure, said Anil Pereira, corporate marketing director.
"As we expanded our customer base, we had incredible demand from customers to provide professional services and security consulting," Mr. Pereira said.
Verisign must take steps to maximize market share and opportunity, said Stephen Sigmond, principal with Dain Rauscher Wessels, a division of Dain Rauscher Inc. It has the potential to be "a one-stop shop for implementation and strategic services," he said.