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Will e-brokers campaign flow into the NITE?
Thursday, September 30, 1999 7:24 PM
by Mike Ogburn
A new chapter may add fresh action to a story gone flat.
Many investors know the rags to riches tale of the Knight/Trimark Group (NITE), a NASDAQ market maker whose $4 stock last November rode the online investing frenzy all the way to a high of $163 in May. As the leader in processing online trading transactions, NITE cashed in on the flood of new accounts and new trading over the Internet.
Its business grew in step with Charles Schwab (SCH), E*Trade (EGRP) and AmeriTrade (AMTD), who rapidly signed up millions of new online accounts. In fact, NITE earned $.48 per share last year and is expected to triple that this year, with earnings projected at $1.55.
Then came this summer's warning that ? for the first time in several quarters ? online trading volume would be flat. Cut off at the knees was the prospect of continued, cascading growth; and not surprisingly, the e-brokers and NITE fell hard. The sector is down more than 50% of its highs for the year.
Another plot twist, however, is in the making.
The top eight e-brokers are projected to spend more than $1 billion in advertising over the next 12 months. They are trying to bring some of the 70 million baby boomers online with clever ads, $75 to $100 sign-up bonuses, lower commissions, expanded services (including e-banking), IPO opportunities and more. One firm, JB Oxford Holdings (JBOH), even offers free Internet access for life to customers who maintain a $2,000 cash balance.
This campaign is going to meet success, if Jupiter Communications' data is any indication. The research firm predicts that the amount of money in online accounts will jump from $415 billion in 1998 to $3 trillion in 2003.
While the online brokers scrape and claw for the coming bounty, a good chunk of it will ultimately be traded through one company ? NITE. It's a pretty simple equation: more people going online leads to more people investing online which leads to more money for NITE.
While the earnings numbers can't continue to grow at a 300% clip, the estimated growth rate of 40% ought to be enough to lift NITE (which currently trades around $30) from its current PE of just under 20.
ECNs and expanded hours will undoubtedly provide action and suspense in the coming months, but this fairy tale may indeed play out happily ever after for NITE.
Disclosure: I own a whopping 50 shares of NITE and don't expect this article to move them out of the red. It's the long-term story I'm banking on. |
