Pity the investors in search of returns from technology companies that cater to the financial services industry.

In the absence of normal benchmarks like profits, these companies’ stocks until recently have been valued by decidedly nonqualitative measures such as the ability to create a buzz, analysts covering the market said at American Banker’s Financial Services in Cyberspace conference in Chicago last week.

Press releases issued by online banking providers, these analysts said, purport that each is the “leading provider” of some technology and has the “most comprehensive” solution.

“You have to view online lending and online financial service companies primarily as marketing companies, not as technology companies,” said James Marks, director of equity research at Credit Suisse First Boston. “Hard-headed, rational analysis of valuation has been divorced from the story. Everyone out there is talking about the story. The better the story, the bigger the valuation became.”

What is confusing the issue — even when analysts and investors understand the technologies involved — is that companies targeting the same market tend to have poor product differentiation. Avivah Litan, a research director at GartnerGroup Inc. of Stamford, Conn., said in a phone interview that 80% of financial services technologies are easily duplicated.

“There are very few original ideas in the online financial services industry, in online banking, billing, and bill presentment,” Ms. Litan said. “These ideas are a dime a dozen. So what do they have?”

But the recent downturn in the stock market has caused — and to some extent was caused by — new criteria for evaluating technology companies, measures that hold numbers in higher esteem than promotional artistry.

“One of the trends I’m seeing in the companies I follow is an increasing focus on the bottom line — how you can generate revenues from traffic and how that traffic evolves into profits,” said Richard Repetto, senior vice president of Putnam Lovell Securities.

Below-forecast consumer adoption of technologies has hammered confidence, said Raimondo Archibold, vice president of Internet and e-commerce equity research at J.P Morgan & Co.

“We’ve had heightened expectations in terms of when people are going to start to do this,” he said. “Every year it’s, ‘This is going to the year that bill payment is going to take off.’ Each year we can point to why it did not happen, but at the end of the day it’s a promise that failed to be delivered.”

In short, the analysts said, a company has to back its buzz with solid profitability, as recent declines have proven.

“The market right now is valuing a lot of companies in the e-finance space on a binary basis: you’re either successful or you’re not, you’re either 100 times your forward revenues or you’re zero,” Mr. Archibold said. “We are very early in the process. It’s hard to determine what will be the winning models and technologies.”

Ms. Litan pointed to S1 Corp., an Atlanta-based provider of Internet banking software and outsourcing services, as a company that is feeling buzz backlash. Its stock hit a high of around $129 Feb. 11 and was trading at around $10 midday Thursday. For the six months that ended June 30, it had a net loss of $228.2 million on revenues of $109.5 million.

“S1 was very good at spinning a story. They always looked like they were a big leader with major banks behind them,” Ms. Litan said. “Peel away the hype and they had problems with implementation, but they always stayed one step ahead in marketing because they did acquisitions. They kept looking really good to the stock market with acquisitions they had been able to do because their stock was so overvalued. Now reality is stepping in.”

S1 officials had no comment.

Bank technology vendors say that stocks may have been overvalued before, but now they are undervalued.

“The irony of the down cycle is that the business is going the roof and the stocks are down,” said Matthew Lawlor, chief executive officer of Online Resources, a provider of Internet banking and bill payment software and outsourcing services.

Mr. Lawlor is chairman of the Internet Banking Enablers Council, a group of 19 CEOs of companies that serve the financial services industry. “The way we make money is to drive volume over fixed costs with recurring user fees,” Mr. Lawlor said. “The more volume, the more profit. The irony is that all of us are experiencing very big increases of volume.”

Online Resources says it has more than tripled its enrollment and transaction volume in each of the last three years.

“You have to understand that this is a hyper-growth industry that is unpredictable,” Mr. Lawlor said. “To be able to predict quarter to quarter is very hard. Sometimes analysts are disappointed when [the industry] doesn’t hit projections to the penny.”

Credit Suisse’s Mr. Marks said it is too early in the game to get discouraged about recent trends and that there is plenty of room for growth in Internet financial services. He said that only about 2,000 of 14,000 financial institutions large enough to afford Web banking are online; only 6% of Americans bank online — and only about a fourth of those are signed up for online bill payment; and Web lending reaches “way less” than 1% of the total market.

“I wouldn’t hang my hat up entirely just because the market is down right now,” Mr. Marks said.

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