, whose stock is sagging this year, got a whack Tuesday in the form of a skeptical report from an analyst who says the nation's only pure online bank will post 2000 earnings that will fall 75% below the consensus estimate.

Chris Marinac, banks analyst at


, reckons that Net.B@nk will earn 4 cents a share in 2000, far short of the 16-cent forecast quoted by analysts surveyed by

First Call/Thomson Financial

. And in comments that will add to the skepticism surrounding Net.B@nk's strategy, Marinac says key indicators like revenue per customer, average account balance and customer profitability are slipping. Robinson-Humphrey hasn't underwritten for Net.B@nk, which Marinac rates a hold.

Net.B@nk's finance chief, Bobby Bowers, defends the company's approach, arguing that at this point in his bank's development it makes more sense to "get the growth" rather than maximize profitability.

Net.B@nk stock slid 9/16, or 3.5%, to 15 1/2 Tuesday against the backdrop of a 2.2% rise in the tech-enriched


and a 4.4% leap in the

KBW Banks Index

. Net.B@nk's stock is off around 15% this year and down some 80% from its 52-week high.

Marketing Costs

The most important recent development at Net.B@nk was its decision earlier this month to more than double the size of its 2000 marketing outlay, to $20 million-$25 million from the previously budgeted $10 million-$11 million, in a bid to attract more new accounts. In the middle of March, Net.B@nk had 77,000 deposit accounts, and it wants to have around 200,000 by the end of the year, according to Richard Repetto, an analyst at

Lehman Brothers

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, which rates the bank outperform and has no underwriting relationship with Net.B@nk.

But while growth numbers do look impressive, Marinac says investors need to keep a beady eye on other metrics that will show the quality of the new accounts. And these don't put Net.B@nk in particularly good light. Revenue per account fell to $156 in last year's fourth quarter, down from $178 in the third, and could fall below $100 by the end of this year, Marinac says. The average account size fell to $8,600 in the fourth quarter (a figure Bowers disputes, saying it's really $9,900) from $9,000 in the third quarter, and will fall close to $8,000 by the end of 2000, Marinac also claims.

Meanwhile, profitability, which Marinac measures by dividing the number of accounts by operating income with marketing expenses added back in, is drooping. This yardstick dropped to $69 in the fourth quarter, a long way below $98 in the third, the Atlanta-based analyst says.

Going for Growth

Bowers readily admits that profitability is taking a dip, but he asserts that this is OK if higher growth can be achieved. He's seen Marinac's report and says parts of the analysis are "fairly shortsighted." For example, average account size may be falling, but that's because Net.B@nk is getting more checking and money-market accounts, as opposed to larger CD accounts. Bowers says that these checking and money market customers, which accounted for 73% of the bank's accounts at the end of last year, are much more likely to buy other financial products. And fees from these products will reduce Net.B@nk's reliance on interest income.

Bowers also says the decision to up marketing spending wasn't a hurried adjustment to Net.B@nk's growth strategy. The finance chief says that much of the cash for the extra marketing is coming from a windfall gain from the retirement of a bond.

Much now rests on Net.B@nk managing to notch up the higher account growth that is supposed to come with more marketing dollars. Recent marketing alliances with








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will definitely help. But even Lehman's Repetto, a relative optimist on Net.B@nk, says the target of 200,000 accounts by year end is "aggressive."