article originally posted at RB...
Article on OLB's
Are the Online Brokerages Back?
Thursday, November 04, 1999 7:09 PM
by Jay Somaney
E*Trade (EGRP) finished the day up $5.31 (20%), Ameritrade (AMTD) ended up $2.31 (14%), Schwab (SCH) was up $3.50 (9%), Knight Trimark (NITE) was up $5.38 (19%) DLJ Direct (DIR) was up $1.38 (9%) and even perennial follow-the-leader National Discount Brokers (NDB) was up $3.38 (14%). So what is happening here? Did Fed Boss Greenspan just get on national television and tell everyone to buy the OLB's? Nope, even though I would love to know what the Fed Chief would buy if he were not the Big Kahuna, we all know that is never going to happen.
The reason was actually quite simple and has been obvious to me for several weeks now. (Please refer to my series of articles on the OLB group in the archives) An analyst at Piper Jaffray came out with his survey that stated that the OLB group saw a quarter-over-quarter (Q2:99 versus Q3:99) decline of approximately 7%. Wow, like that is news to us. Anyone that follows the Internet group had only to look at the volumes on the NASDAQ in the third quarter to realize that the OLB's were definitely going to see a sequential quarter decline in volumes. Another clue was the stock prices of this group as a whole. They were the pariahs of the fall. All the Nets were back in favor but nobody wanted to touch this group.
In the same report he went on to say that the online industry as a whole added 1.1 million new accounts in Q3:99, up 11.5% from the previous quarter and experienced an increase of 6.6% in assets or a whopping $648 billion. If I was one of the mainstream brokerage houses I would be sweating bullets and looking for answers. I mean, how could the OLB's experience such heady account and asset base growth when volumes were actually declining and Internet stocks were in the ditch? I will give you four simple reasons:
Lower commissions
Better research access
Better customer service
Convenience
In the survey, the analyst further stated that EGRP had added 310,000 new accounts in the quarter and that despite E*Trade's trading volume actually remaining flat for the quarter, their market share actually grew to 15.1% from 14% the previous quarter. This was due to the fact that the other OLB's were actually seeing declines in trading volumes and E*Trade was holding steady. The breakdown is as follows:
SCH: 117,800 trades/day
EGRP: 76,333 trades/day
TWE: 61,031 trades/day
Fidelity Online: 60,013 trades/day
Datek: 53,840 trades/day
AMTD: 46,199 trades/day
DLJ Direct: 19,200 trades/day
The above mentioned OLB's were followed by Discover, Cybercorp, Suretrade, Dreyfus, and National Discount Brokers in order of market share.
So what does all this mean? To me, it means one thing, the OLB's are definitely back.
Until the next time, Happy Investing.
Jay M. Somaney is the portfolio manager of TSG Internet Fund. His fund often buys and sells securities that are the subject of his columns. At present, the fund is long EGRP. However, the positions in the fund can change at any time. The information in his column in no way represents a recommendation to buy or sell stocks. Readers are encouraged to forward any comments/suggestions to the author at |
