AT: what do you make out of this?
From Briefing.com:
08:55 ET ******
E*TRADE GROUP (EGRP) 13 1/4. From high-flying pioneer with rising profits, to concept stock. After the close Wednesday, Internet broker E*Trade (EGRP) reported a fiscal fourth quarter (Sep) loss of $0.13 a share. This was a bit less of a loss than the average Wall Street forecast of a $0.14 loss, but down sharply from the year-ago profit of $0.15 per share. Revenues rose 28% from the year-earlier period. That is down sharply from the near tripling in 1997, and the 68%, 65%, and 104% gains in the first, second, and third quarters of this year, respectively. The profit plunge is a result of a massive advertising campaign that is related to EGRP's desire to become a financial "portal" as well as a broker. In fact, the very first sentence of the press release includes the fact that there were 127,000 new registered users for Destination E*Trade, their new portal site. The release calls the company a "branded provider of online investing services," a far more comprehensive definition that just a broker. It is not far down the press release does one learn that transactions, the essence of brokering, rose only 27% from the year ago period, and just 6% sequentially. EGRP a few years ago was the number one Internet broker and profits and revenues were surging. Then they hit the wall due to competition. Revenues continued to rise, but severe price competition caused profits, prior to this quarter, to hold flat at 15 to 16 cents a share for five straight quarters. The stock tanked. So, rather than fight the constant pricing pressures, they decided to recreate the company as not just a broker, but as a branded destination, a "portal." It is an extremely ambitious, and risky plan. EGRP has decided to invest huge amounts in marketing and that has eliminated profits. Furthermore, they are up against the likes of Yahoo in terms of providing comprehensive information. Whether they will ultimately be successful depends partly on execution. So far, however, if EGRP was hoping to get assigned the multiples of portals such as Yahoo, they have failed. The stock has continued lower and now the company is looking at continued losses. They have to make sure not to lose their focus on providing quality brokerage execution, while at the same convincing the market that they are a "concept" stock. That is, that current profits don't matter, what matters is the concept that they eventually will be a unique "investing services site" that has the potential for high profits. The market needs more convincing that this shift in corporate definition will work. |
