Shares of Net.Bank Inc. have fallen sharply in recent days, despite news that the Internet bank's only publicly traded rival, Telebanc Financial Corp., is being sold.

The stock price of Atlanta-based Net.Bank fell 31% last week, hitting $29.25 a share in Friday afternoon trading. At that price, the stock was 65% off its 52-week high of $83, reached April 14.

On Tuesday, E-Trade Group Inc., the on-line brokerage pioneer, announced plans to buy Telebanc Financial Corp., a $2.6 billion-asset thrift based in Arlington, Va., for $1.8 billion of stock or 3.5 times book value. Telebanc's shares had risen from $66.50 at Tuesday's opening to $72.125 Friday afternoon-still well shy of the $93.45 that E-Trade agreed to pay per share.

One might expect that Net.Bank's stock would benefit from the high- priced sale of a peer company. But analysts said the market recognizes that Net.Bank, a $526 million-asset thrift, already is trading at a huge premium to the price a buyer would be likely to pay.

Such is the condition of many Internet-related stocks, which-despite recent corrections-continue to trade at logic-defying prices relative to earnings levels.

Jeff Runnfeldt, an analyst at San Francisco-based First Security Van Kasper, said that E-Trade paid about 28 times estimated 1999 revenues for Telebanc. Net.Bank is trading at close to 35 times estimated 1999 revenues and nearly 165 times the consensus estimate of of its 1999 earnings (18 cents a share).

"I would be really surprised if somebody came along and paid what this company is trading for," Mr. Runnfeldt said. "Some people even think that E-Trade overpaid for what they got."

Of Net.Bank's falling share price, Mr. Runnfeldt said, "the bank is working its way down to a 28-times-revenue level."

Net.Bank's high valuation is only one reason that Mr. Runnfeldt initiated his coverage of the company on May 17 with a "sell" recommendation.

The analyst said he is skeptical of the whole "branchless bank" sector. He said these companies have less than 2% of the nation's on-line banking customer base; the rest being controlled mainly by the on-line banking units of large, full-service commercial banks.

Other on-line or branchless banks-all of which are either private or divisions of larger companies-include CompuBank, Security First Network Bank, and First Internet Bank of Indiana.

"Their low market share tells me that they haven't provided a compelling value to customers," Mr. Runnfeldt said.

Because Internet banks specialize in consumer-oriented deposit products and lack their own automated teller machines, Mr. Runnfeldt said, they appeal only to a small corps of "highly interest-rate-sensitive individuals."

In his report, Mr. Runnfeldt wrote that, unlike Internet leaders such as Amazon.com and E-Trade, which quickly jumped to strong positions in their respective industries, branchless banks' market penetration remains small- "even when limited to just the universe of on-line banking customers, and they are losing ground quickly.'"

Nevertheless, analysts said, some of these banks, because of their relatively high earnings growth rates, make compelling takeover cases-at the right price.

"Because of their thrift charters, they could be bought by any number of financial services companies," said Christopher T. Kelly, an analyst at Morgan Keegan & Co. This article appeared previously in American Banker's Web edition.

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