E*Trade 3rd-Qtr Loss 10c-Shr as Trading Growth Slows
Palo Alto, California, July 19 (Bloomberg) -- E*Trade Group
Inc. said it lost $24.2 million in the fiscal third quarter as
trading growth slowed and it spent more on advertising and
technology to land and keep customers.
Palo Alto, California-based E*Trade, the second-largest
Internet broker, lost 10 cents a share, compared with a profit of
$5.1 million, or 3 cents, in the year-ago quarter.
Revenue rose 128 percent to $151.7 million as customer
trades rose to about 80,600 daily from about 70,000 in the
previous quarter. The company ended the quarter with 1.24 million
customer accounts, up 332,000, or 37 percent, from March 31.
``It's a strong report but it's not spectacular,' said Bill
Burnham, analyst with Credit Suisse First Boston, who recommends
investors buy the stock. ``The account number was huge but
everyone was showing big account numbers.'
E*Trade stock fell 2 3/8, or 6.3 percent, to 35 1/8 in
afternoon Nasdaq trading. The average estimate of 11 analysts
surveyed by First Call Corp. was for a loss of 12 cents a share.
E*Trade spent $82.4 million on sales and marketing in the
quarter ended June 30, up from $60 million the previous quarter
and $11.6 million a year ago. That helped add customers, who made
more trades.
E*Trade is the fourth publicly traded standalone online
broker to release quarterly earnings. Last week Charles Schwab
Corp., the biggest, said online trades fell 1 percent during the
quarter while Ameritrade Holding Corp., the No. 6, said they rose
14 percent. Schwab added 422,000 accounts while Ameritrade added
84,000.
``Last year our goal was to add 1 million accounts in the
next 12 to 18 months, so we're ahead of schedule and have now
significantly closed in on Schwab,' Christos M. Cotsakos,
chairman and chief executive, said during a conference call with
investors and analysts. The company is preparing for a shakeout,
and ``smaller players and new entrants will find it difficult to
not only to compete but survive,' he said.
E*Trade has added 700,000 accounts since September 1998.
Schwab, with 2.8 million online accounts, has added about 800,000
in that same period and still has more than twice as many as
E*Trade.
Slower Growth
Stock trades made over the Internet rose about 10 percent
industry-wide in the latest quarter, down from 47 percent in
first three months of the year, Burnham said. E*Trade's results
are ``indicative of the quarter, everyone saw slower volume
growth and big account growth numbers, which bodes well for the
future,' he said.
Schwab shares fell 2 15/16 to 49 1/2. Ameritrade fell 2 3/4
to 31 1/2.
E*Trade's trading volume growth of 15 percent ``is about
what was expected, but that might be a little bit of a negative
perceptually because people grew accustomed to such rapid
increases,' said Steve Franco, analyst with U.S. Bancorp Piper
Jaffray.
Spending on technology and development almost tripled to
$20.7 million from $7.3 million a year ago, as it added computers
and staff to handle increased volume. In February the company
opened a new computer center near Atlanta. It said it will spend
15 percent to 20 percent of revenue on computers in future
quarters. Last quarter it added 300 new customer service
employees.
It's also buying companies, announcing in the past six weeks
the acquisitions of Telebanc Financial Corp., an online bank, and
TIR Holdings Ltd., a firm that executes international stock
trades for institutions.
``We need to expand beyond domestic brokerage to diversify
our revenue stream,' Cotsakos said. The Telebanc transaction is
expected to close by the end of October, he said.
`Digital Financial Media'
Also in October, E*Trade will start a ``digital financial
media' division aimed at building a personalized ``online
trading cockpit' for investors that combines news, research,
charts, and alerts, Cotsakos said. A Web link to Archipelago LLC,
allowing customers to buy and sell Nasdaq stocks without using
any market maker intermediary, will also be in operation by then.
During the past quarter, customer assets rose 22 percent to
$26 billion. The company spent an average of $248 in sales and
marketing to add each new account, down from $257 in the previous
quarter, and will spend a total of $75 million to $85 million on
ads in the current quarter.
``Anything less than $350 is good,' said Len Purkis, chief
financial officer. At an average commission of $19 and average
annual trades per account of 20, a new account will pay for
itself in a year, not counting fees from other products and
services sold to those accounts, such as mutual funds.
About 15 to 20 percent of E*Trade account holders buy mutual
funds through the firm, said Kathy Levinson, president and chief
operating officer.
E*Trade's average assets per account fell to about $21,000
in the quarter from about $23,000 last quarter, partly because
new accounts contain less money, and partly because of stock
price declines, Franco said.
``It's time now to shift the focus from trading volume and
look more in the near term at accounts, which is going to drive
profitability longer-term,' said Franco.
--Randy Whitestone in the New York newsroom (212) 940-1805 |
