While

CheckFree

(CKFR)

seems to have clarified its position in the muddled online bill-payment market by acquiring its biggest competitor, the rousing reaction to the deal has left its stock's outlook more than a bit foggy.

After running up 84% to an intraday high of 125 Wednesday on the news that it acquired

Transpoint

, CheckFree closed up 47% on the day. It then jumped another 16% intraday Thursday before ending fractionally lower at 99 3/4. By Friday, though, the stock had fallen to 81 15/16.

Not exactly a crystal-clear buy signal.

The kind of appreciation investors showed the deal is a sign they think CheckFree took a major step toward addressing its one fundamental issue: getting enough bill-presentment deals and bill-payment customers to make its business viable for the long term. But the quick downturn also shows that at these levels, the company has yet to reach the kind of must-own status among institutional investors that can put it in the Internet stratosphere.

In fact, in December, when CheckFree shares last reached these lofty levels, institutional investors, including fund families

Stein Roe

and

Strong Capital

, unloaded their shares. The

Gintel

fund, which owns about 1% of CheckFree's shares, sold more than 1 million of its 1.5 million-share position last year. It then picked up some more earlier this year and sold shares (but retained 500,000) as they soared last week.

That leaves the question of whether CheckFree is showing signs of being on the path to becoming a hot business-to-business play such as Internet infrastructure player

BroadVision

(BVSN) - Get Report

or if its stock performance has maxed out for the short term.

There's a group of believers out there who say it's the former. They say a long-term rise in the stock price to 110 to 125 is justified because, finally, the online bill payment and presentment mecca is just around the corner.

Namely, these analysts and investors say that the subscriber growth -- the critical mass -- the market has been waiting for is finally within reach. Transpoint brought about 15 new billers into CheckFree's fold, bringing the total to about 80.

To start, the Transpoint merger should put subscribers at about 4.2 million by the end of CheckFree's fiscal year in June from its current 3 million, according to

Dain Rauscher Wessels

analyst Jeffrey Runnfeldt, and it should boost subscriber growth beyond the 6% to 7% it booked last quarter. By the end of 2003, CheckFree should have 30 million subscribers.

Credit Suisse First Boston's

James Marks says that growth may now rise to 15% to 16% by the second half of this year. Neither Dain Rauscher nor CS First Boston has done any underwriting for any of the companies mentioned.

CheckFree isn't exactly coming from a position of weakness. Before it agreed to merge with Transpoint, CheckFree was dominating the bill-payment market with about a 75% market share. Still, it had a major problem: Billers wouldn't jump into a network with a few customers, and customers wouldn't use a service in which they couldn't get all of their bills presented online. That's why the doubt is vanishing.

"I think it will speed things up because it removes a barrier of confusion that existed in the minds of potential customers, not consumers so much as financial institutions," says Robert Gintel, lead manager of the Gintel fund. Possible CheckFree customers, namely banks and other financial institutions, were debating whether to go with CheckFree or with Transpoint (backed by

Citigroup

(C) - Get Report

,

Microsoft

(MSFT) - Get Report

and

First Data

(FDC) - Get Report

) or with

Spectrum

(a consortium including

Wells Fargo

(WFC) - Get Report

and

First Union

). Even cyberbroker

E*Trade

(EGRP)

has joined the fray, saying Tuesday that it would finance privately held online biller

PayMyBills.com

and offer the service on its site.

So now, with confusion removed from the equation, and with a partnership with such giants as Microsoft, First Data and Citigroup, who now own 23% of CheckFree, the seemingly expensive stock is justified. CS First Boston's Marks came up with a 12-month target of 110 earlier this month and is sticking by it.

"If I sit down and really work the numbers out in terms of what I think the business would be worth in three years, based on penetration of online bill market, that's the number I come up with," Marks says.

Then he adds in the intangible value of market dominance, the fact that it's a hot B2B play and that it's trading at a lower revenue multiple than those other hot stocks. On a price-to-revenue basis, CheckFree is trading at about 15 times 2001 revenue estimates, while other hot B2B stocks are up over 50 times forward revenues, he explains.

That may be because a couple of key fundamental factors are working against it. Robert Sterling, an analyst from

Jupiter Communications

, points out that CheckFree still has competitors out there, companies such as privately held

CyberBills

, which approaches consumers who want online bill presentment and payment. CheckFree is not a Jupiter client, but CyberBills is.

And Marks says he wonders whether banks will want to go with CheckFree rather than the Spectrum consortium. And, with Microsoft involved, there's sure to be some sort of antitrust questions raised, he says.

But even Gintel, who says he has made more money off CheckFree in realized and unrealized gains than any other stock he has ever owned, isn't quite ready to throw in the towel. "It's hard for me to envision life without CheckFree."