Observers Say November Trading Should Boost Online Brokers
Wednesday, December 1, 1999 12:32 PM
NEW YORK -(Dow Jones)- November turned out to be a strong month for online trading and should make the fourth quarter a good one for Internet brokerage firms, three Wall Street analysts said Wednesday.
Hambrecht & Quist analyst Greg Smith said November was "an amazing month" for online trading as a strong showing by technology stocks helped heighten speculative fever. Smith said average daily volumes on the Nasdaq Stock Market rose 25% in November from October. For the fourth quarter, the number of average daily online trades will probably be 25% to 30% higher than in the third quarter, Smith estimated. His previous forecast had called for a 15% to 20% sequential rise in online trades.
The outlook moved Smith to raise earnings estimates for the December quarter on two brokers, E*Trade Group Inc. (EGRP, news, msgs) and Charles Schwab Corp. (SCH, news, msgs), and on Knight/Trimark Group Inc. (NITE, news, msgs), a large market maker that gets a good portion of its order flow from online brokers.
Smith wasn't the only one to sound an optimistic note on the sector. Scott Appleby of Robertson Stephens said in a research note that sequential trading growth is expected to be around 20% - and maybe even higher - for Knight/Trimark and the online brokers. And L. Russell Keene of Putnam Lovell de Guardiola & Thornton said the expected trading activity for the fourth quarter may be even better than what was seen in the second quarter, which is considered the best ever for online brokers.
The bullish volume forecasts for online brokers stand in stark contrast to the third quarter, when volumes at several firms fell, fueling speculation the Internet trading party may be coming to an end. Now, the third quarter's weak performance may help the fourth quarter look strong by comparison.
Smith raised fourth-quarter earnings estimates on Schwab and Knight/Trimark to 17 cents a share from 16 cents and to 33 cents a share from 29 cents, respectively. On E*Trade, Smith raised his estimate for the first quarter of the 2000 fiscal year (E, news, msgs*Trade's fiscal year ends in September) to 21 cents a share from 20 cents.
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