Investors Dump Online Resources as Growth Slows

The stock of Online Resources Corp. (NASDAQ: ORCC), Chantilly, Va., has been hammered since the company reported earnings last Thursday as analysts lowered their earnings estimates and opinion of the company, a provider of online banking and collection services to banks.

After the market close Thursday, Online Resources reported earnings of 4 cents per diluted share, compared to a net loss of $3.4 million, or 13 cents per diluted share, in the prior year. However, analyst consensus, according to Yahoo! Finance, was for earnings of 7 cents per share. The company said its growth rate for the near future would be 20 percent, also disappointing analysts.

As a result, CIBC World Markets analyst Glenn Greene and Stephens Inc. analyst Brett Huff downgraded Online Resources' stock.

The company's “growth outlook has moderated considerably and suddenly, relative to what we felt were our realistic expectations,” Green reported. “One of the appeals to us of the business model was a diversified base of relatively small clients that would not exert much pricing pressure.”

Online Resources’ executives disclosed during a conference call with analysts that it had instituted this year volume discount deals with large banks.

On Friday, shares of Online Resources plummeted $3.62, or more than 29 percent, to $8.66. The stock briefly touched as low as $8.34, the lowest price since March 2005. On Monday, Friedman, Billings Ramsey & Co. analyst Matthew J. McCormack cut his price target on the stock from $18 to $12, and the stock fell further to close at $7.86, after hitting a 52-week low of $7.50 earlier in the session, its lowest point since January 2005.

“We do not believe the business is fundamentally broken, but rather a question of ORCC's lack of credibility,” McCormack said in a report on the company. “We met with management on Friday and are confident that the (Princeton eCom) acquisition will prove strategically beneficial, despite the stock nearly 40 percent below the price levels when that deal was announced 1.5 years ago.”

Online Resources bought Princeton eCom, a provider of an online billing service, for $180 million in cash in May 2006. McCormack noted that customer “adoption trends have been much slower than management originally anticipated.”

Online Resources stock was trading midday today at $7.80, down 0.7 percent.