Investors Like Positioning Of Web Banking Company.

IN the eight months that online banking services provider Digital Insight Corp. has been trading on Nasdaq, the company has seen its stock price jump from $19 to $86, only to fall back back below $40.

That's not terribly unusual, considering the fluctuation of the tech-heavy index and the general downturn in Internet-related stocks. But unlike many Internet stocks, Digital Insight's stock as of last week was still trading solidly above its opening-day price, and projections and prospects are considered quite favorable.

"This company's pretty exciting," said Vincent Daniel, an analyst of e-financial services for CLBC World Markets. "They're going to be the hub for a group of financial institutions to provide online banking capabilities."

Calabasas-based Digital Insight is a business-to-business operation that helps small and medium-sized financial institutions (assets of less than $10 billion) to provide Internet banking services to their customers.

The company generates revenues from three basic activities: It charges a fee for designing and launching each financial institution's Web site. It takes a cut of all fees resulting from transactions handled over the site. And it charges a recurring fee for operating and maintaining the site.

Analysts believe that Digital Insight's target market will be a growing one, as community banks look for ways to compete with their larger brethren. These banks can seldom afford to provide Internet services on their own, Daniel said.

"We're focusing on enabling regional and community-sized financial institutions to serve their customers over the Internet," said John Dorman, Digital Insight's chief executive. "This is very important for them to compete, because the biggest banks are making huge investments to exploit the Internet themselves."

With this market of smaller institutions clamoring for online services, optimism about Digital Insight was not hindered by its somewhat dismal first-quarter results, which included a one-time cost of a merger with a similar Atlanta-based company, nFront Inc., with a strong foothold of clients on the East Coast.

For the first quarter ended March 31, Digital Insight reported a net loss of $20.4 million (89 cents per diluted share), compared with a net loss of $2.7 million (26 cents) for the same quarter in 1999.

Excluding merger costs and the amortization of stock-based compensation, the company's first-quarter loss would have been $7.4 million (32 cents). That figure beat Wall Street consensus estimate of a 34 cents-a-share loss.

The quarterly earnings announcement, made after the market closed on April 27, was followed the next day by a $3.50 rise in Digital Insight's share price, with it closing at $39.13. It hovered around $40 last week.

Daniel is projecting the price will rise to $60 over the next 12 to 18 months, and Robertson Stephens analyst Andrew Jeffrey is projecting a $70 target stock price within that time frame.

"General and administrative costs and R&D (research and development) are going to be high while the company's growing," Jeffrey said. "You've got to ask, 'What's the profit margin on the core business?' And that's improved about 10 percent in the quarter."

In addition to designing customized Web sites, the company helps its customers to offer online consumer banking and online business banking.

"The main focus is on expanding the types of services that financial institutions can offer over the Internet, to include things like loans and an online brokerage, and insurance and other types of e-commerce," Dorman said. "An example would be where a person can buy a car and, with an online loan application, finance the car online -- all through the bank's Web site."

Based on the more than 880 clients it currently boasts, Digital Insight is the largest provider of these services in the nation.

"We'll reach 1,000 (clients) within the next couple of months," Dorman said. "We would expect to be over 2,000 banks by the end of next year, 2001. We're adding banks at a very rapid rate."

But adding new clients is only the icing on the company's cake.

"One of the nice things about the Digital Insight model is that it's got 75 percent recurring revenue based on certain levels of usage among its installed base," Jeffrey said. 'They're not entirely dependent on new installations, as other companies in the industry are.

"Even conservative estimates expect there's likely to be an upside in the rest of the year. ... The second half of this year could be significantly better than analysts expect"