So why is redherring so hot on this IPO ?
The closest comparison to Waterhouse is Schwab (discount brokerage, extensive online trading AND branch offices, free mutual funds, low commission rates, do it yourself investment approach, free check writing and credit cards with accounts, etc.).
If you compare assets under management, number of accounts, online trading volume, year over year growth, etc., then relative to Schwab's market cap the $20-$24 IPO price range produces a lower cost per account, lower cost per online trade, lower costs per assets undermanagement, etc. for Waterhouse than for Schwab. So, on a relative basis, it is less expensive to buy Watrehouse IPO shares than current Schwab shares.
And the segment of the market is attractive. Online brokerage, brand name, strong growth in # of accounts, and especially current profitability (and growing profitability). In this market sector, your only two choices with these factors in place NOW are Schwab and Waterhouse.
The other factor for Waterhouse, which isn't quite in place yet for Schwab, is international exposure. Canada, Australia and Hong Kong are currently well covered by Waterhouse offices. Overseas, discount brokers are 15 year behind US development (in most countries, non-existant), so both international growth and domestic growth are opportunities.
So, I'd imagine that's why Red Herring is positive. Waterhouse is not a 1-day, 30-month, pop on open stock, it is a long term, next 5-15 years look good stock. Don't get me wrong, it may pop on the open, but it is also a stock that you can buy on the IPO and put in your IRA and forget about, in my opinion. The main risks to Waterhouse are general market-related stuff that would harm any brokerage stock. As far as competitive risks in their segment, Waterhouse's size and leading position makes them (as well as Schwab) a favorite to win battles, it's the smaller guys (like EGRP) that may have to struggle in the years (not months) ahead.
Elroy |
