Despite Slowdown in Trading, Online Brokers Are Seen Thriving
By GASTON F. CERON
Dow Jones Newswires
July 9, 1999
NEW YORK -- Despite a slowdown in stock trading volume growth, the second quarter proved to be another busy one for Internet brokerage firms, as investors remained keenly interested in buying and selling stocks online.
Customer trading volumes at online firms were 15% higher in the second quarter than in the first quarter, according to Credit Suisse First Boston analyst Bill Burnham. This represents a sharp slowdown from the growth seen in previous quarters; volumes grew by 47% and 34% sequentially in the first quarter and 1998's fourth quarter, respectively.
The first part of the second quarter was very strong, with trading at firms such as Charles Schwab Corp. reaching record levels in April. But May and June were less busy, which some analysts blamed on the gyrations of the stock market. "Even though April was a great month for trading activity, the Internet stocks pulled back for a good part of the quarter, which cuts back on the trading activity of these online brokers," said Richard Repetto, an analyst at Lehman Brothers.
Nevertheless, analysts maintained that the industry is still growing at a robust pace, continuing to gain market share. Account growth in the industry "should still be strong," said Stephen Franco, an analyst at U.S. Bancorp Piper Jaffray.
And despite the slowdown in volume growth, earnings at Schwab are still expected to nearly double from year-earlier levels. Schwab, based in San Francisco, is expected to have earned 17 cents a share, according to First Call Corp., up from 9 cents a year ago, reflecting stock splits.
To ensure that new customer accounts will keep rolling in, online brokers have invested heavily in advertising and marketing. E*Trade Group Inc., for example, is projected to post its fourth straight quarterly loss, mainly due to its high selling and marketing expenses.
However expensive, this strategy may be paying off. "Of the individual firms, we believe that E*Trade will report one of the strongest performances in terms of account and trade growth due to the continued success of its marketing campaign," Mr. Burnham of Credit Suisse wrote in a research note.
E*Trade, of Palo Alto, Calif., is expected to post a loss of 12 cents a share for its third fiscal quarter ended in June, compared with earnings of four cents a share a year ago, adjusted for stock splits.
Another recent highlight was the move by firms such as E*Trade into bond trading. But some industry experts contend that revenues from bond trading are unlikely to have a significant effect on the bottom line, at least initially. Offering fixed-income products, these experts say, is more about the desire to offer a broader array of investment choices.
Ameritrade Holding Corp., of Omaha, Neb., is projected to have earned three cents a share for its fiscal third quarter ended in June, flat from a year ago, reflecting stock splits. "We expect a decent quarter" from Ameritrade, said BancBoston Robertson Stephens analyst Scott Appleby, in a recent research note. "The combination of a prudent marketing budget and its leadership as the low-cost provider should serve the company well."
Ameritrade is scheduled to report its fiscal third-quarter results Monday morning.
Knight/Trimark Group Inc. is expected to earn 35 cents a share, up from a stock split-adjusted 12 cents a year ago. The Jersey City, N.J., company has benefited from the growth in online investing, says CIBC World Markets analyst Amar Mehta, as the trades processed for Internet brokerages have helped Knight/Trimark grow its market-making business.
DLJdirect, which also operates out of Jersey City, is expected to post a loss of a penny a share. A year-ago figure wasn't immediately available for the company, which offered shares to the public for the first time in late May.
On Thursday, National Discount Brokers Group Inc. reported earnings for its fourth quarter and fiscal year ended May 31. The Jersey City, N.J., company earned 47 cents a diluted share from continuing operations, well above the 14 cents it earned in the fourth quarter of fiscal 1998. |
