10/8/99 Dow Jones News Serv. 14:10:00
Dow Jones News Service
Copyright (c) 1999, Dow Jones & Company, Inc.
Friday, October 8, 1999
Online Brokers Seen Posting Mixed Results For 3Q -- EGRP
By Gaston F. Ceron
NEW YORK (Dow Jones)--For Internet brokerage firms, the third quarter of 1999
was somewhat of a mixed bag.
Interest in online trading remained red-hot and the firms continued to seize
upon it by running expensive advertising to lure new clients, meaning that
account growth is expected to have remained healthy. But on the other hand, the
online brokers are poised to report what some analysts say will be their first
industrywide sequential drop in online trading volumes.
"We've had this explosive growth in the number of accounts," says Gregory
Smith, an analyst at Hambrecht & Quist in San Francisco, who figures online
volumes fell 5% to 10% from the second to the third quarter. "But now, as the
industry has reached a certain scale, it's susceptible, I would say, to the
whims of the market."
Fans of the industry often point out that the drop in trading volume took
place in a quarter that included the traditionally less active summer months,
when trading activity slows down. But others note that up until now, the
excitement and hype surrounding online investing has protected it against such
slowdowns. "It's the first time the online brokerage industry has really seen a
seasonality effect," says Smith.
Concerns about trading volumes have hurt the shares of online brokers, many
of which peaked in April - a very busy month for the industry - but have come
down significantly since then. Analysts say the ups-and-downs of the overall
Internet sector have also played a hand.
But while trading volumes have dropped, many analysts and industry executives
think that there are still a good number of individuals who have yet to move
their investing online, meaning that the industry's growth prospects are
bright.
One online firm that had been quiet up until recently is Ameritrade Holding
Corp. (AMTD). The Omaha, Neb., company recently embarked on an ambitious $200
million advertising campaign that Ameritrade officials say seeks to add 800,000
to 1 million new clients. In late June, Ameritrade had about 505,000 core
discount brokerage accounts, net of attrition.
And the company recently announced a plan to offer after-hours stock trading
to its clients, a move that came after other brokers had taken similar steps.
"I think that they're moving a lot faster now," says William Wong, an analyst
at Josephthal & Co. in New York.
But the spending is expected to take its toll, and Wall Street analysts
polled by First Call/Thomson Financial are anticipating that Ameritrade will
post a loss of 5 cents a share for its fourth fiscal quarter ended in
September. In the fourth quarter of fiscal 1998, Ameritrade earned 3 cents a
share, adjusted for stock splits.
Analysts expect E*Trade Group Inc. (EGRP), of Menlo Park, Calif., to post a
loss of 13 cents a share for its fourth fiscal quarter ended in September. In
the fourth quarter of fiscal 1998, E*Trade posted a stock split-adjusted loss
of 4 cents a share, excluding a charge. L. Russell Keene, an Internet broker
analyst at Putnam Lovell de Guardiola & Thornton Inc. in New York, estimates
E*Trade's average daily trading volumes fell by 4% to 5% sequentially from the
previous quarter.
Charles Schwab Corp. (SCH), San Francisco, is expected to earn 15 cents a
share, up from 12 cents a year ago, adjusted for stock splits. The company's
combination of Web stock trading and human-staffed branch offices gives it the
best of both worlds, says Smith, the Hambrecht & Quist analyst. "I think Schwab
is in a really sweet spot," he says. Smith figures trading volume should drop
sequentially, but he also thinks asset growth remains solid.
Knight/Trimark Group Inc. (NITE), the Jersey City, N.J., market-making firm
that processes a lot of online trades, is expected to earn 30 cents a share, up
from a split-adjusted pro forma 13 cents a year ago.
And DLJdirect (DIR), which also operates out of Jersey City, is projected to
post a loss of 3 cents a share. A year-ago figure for DLJdirect, which went
public in May, wasn't immediately available.
Like several other online brokerage firms, DLJdirect recently said it would
offer after-hours trading to its clients. But analysts say that while the announcements
have made a lot of noise, it's unclear how successful after-hours
stock trading will be. "It hasn't picked up yet," says CIBC World Markets
analyst Amar Mehta. "I don't know how big it's going to be."
Perhaps more importantly, it's also unclear how profitable the service will
be to the firms that offer it. "I don't think it's a source of
profitability . . . at this point," says Smith, the Hambrecht & Quist analyst.
- Gaston F. Ceron; Dow Jones Newswires; 201-938-5234
gaston.ceron@dowjones.com
(END) DOW JONES NEWS 10-08-99
02:10 PM |
