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Non-Tech : Knight/Trimark Group, Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Gary Korn who wrote (5149)	10/17/1999 1:08:00 AM
From: Gary Korn	Read Replies (2) \| Respond to of 10027

10/18/99 Web Fin. (Pg. Unavail. Online) 1999 WL 17598794 Web Finance Copyright 1999 Securities Data Publishing Monday, October 18, 1999 Declining Interest: Dampened Online Trading Hits Web Brokers Howard Stock Among the biggest hit as a result of a waning interest in increasingly less volatile technology stocks are the online brokerage companies themselves, as shown by their third quarter figures. For example, Ameritrade Holding Corp. and ETrade Group stock prices which were floating around $60 apiece in April have both fallen to around $19 and $25, respectively. Most dramatically, though, Knight/Trimark Group which enjoyed a share price of a little under $80 in May largely due to the popularity of technology stocks, saw its stock fall by over 65% by the time it issued its third quarter results last week. To compound the firm's misfortune, analysts' estimates compiled by First Call predicted earnings of 30 cents a share. News of the actual earnings, 19 cents a share, sent the stock tumbling to just over $26. Other online brokers are feeling the pinch too, mostly due to competitive pressure to operate with the lowest commissions, and with the recent arrival on the scene of major players like Merrill Lynch and American Express. With every new entrant, the industry becomes less of a specialized niche market, and it seems its stocks are being priced accordingly. Recent coverage from online brokerage analysts has hammered home that there is little left of the bubble to burst. A week before Knight/Trimark issued its results, Sanford C. Bernstein Analyst Steve Galbraith took the increasingly unusual step of issuing an underperform' ratingsell' by modern parlance - on ETrade, Charles Schwab and Knight/Trimark, declaring that "The party is over." Other analysts are following suit. Morgan Stanley Dean Witter Analyst Henry McVey dropped his neutral' ratings for Charles Schwab, Merrill Lynch and online brokerage specialist TD Waterhouse Group down to outperform,' pronouncing a "dire" outlook for firms that operate solely online. But is this really the beginning of the end for online brokers? After all, analysts had expected a third-quarter slump in the market for months. Traditionally, trading volumes tend to slow by late summer and pick up again in the fall. Indeed, Nasdaq's figures for recent months have been in keeping with this tradition. At 968 million, the average daily share volume for September was higher than both July's 946 million and August's 882 million. For the first few days in October, average trading topped 1 billion shares, indicating that the markets are picking up. But some analysts are still dubious whether the markets will take online brokers' stocks along for the ride with them. For example, American Express recently announced that it wasn't going to charge any commission at all of customers with over $100,000 in their accounts, and investors with $25,000 only have to pay when they sell shares, which McVey called "just the beginning of a slippery slope," according to a research note. As far as investors in online brokers are concerned, transaction revenue will fall by a compound annual rate of 9% until 2003. Whereas the average industry commission was $80 in 1998, this figure will drop to an average of $28 within three years, McVey predicted. Others are less convinced. Online brokers may give their most profitable customers free trades, but they will make their money back in other ways like hiking up interest rates on margin loans and charging higher commission rates for other services like options trades, according to a recent report by Hambrecht and Quist Analyst Greg Smith. He noted that in the last six quarters, 77% of Ameritrade's gross income came from net interest income, or the difference between the interest on customers' margin balances and the amount it pays out for its own credit balances. Another way that online brokers may try to claw back revenue lost to shrinking commission charges from their customers could be through annual fees based on their assets, a system Merrill Lynch introduced back in July, which could end up costing customers more than if they paid by transaction. Whatever happens, online brokerage companies are sure to have a fight for survival on their hands, and casualties of this will strengthen the positions of those still standing. The main defense may be through value-added services like advice and analysis; in other words, truly bringing breadth of the traditional brokerage service to the Internet. ---- INDEX REFERENCES ----

To: Gary Korn who wrote (5149)	10/17/1999 2:22:00 AM
From: blankmind	Read Replies (2) \| Respond to of 10027

gary, i know you are assuming for 2000 will be 30% greater than 1999. but assume that q1 and q2 of 99 were anomalies when they earned .34 and .43, respectively. assume kp was discussing the 30% growth as this q, .19. hence the earnings do not start at the rarified 1.21 but the earthly .76 (4 x.19) if growth rate is 30%, next year would be .98. could i be reading kp's comments wrong? thanks for the data, i am still looking at it.

To: Gary Korn who wrote (5149)	10/17/1999 9:54:00 AM
From: the dodger	Read Replies (3) \| Respond to of 10027

<<<Effect of 30 percent growth rate (KP's number) going forward, with a p.e. of 30>>> I would mostly agree in calmer markets, and if NITE were a twenty year old company instead of two...so I see a few problems... First..."KP's #s"...about six-weeks ago, KP said he thought ".37 was a couple of pennies too strong" for the recent Q...well, in terms of pennies, he ended up missing the bottom line by about 1.7 billion pennies when NITE came in at .19 for the Q. So the question to me is, if KP can't see down the pipe any better than that, why should I trust his estimates on long-term growth? Secondly...Okay, give KP the benefit of the doubt...let's say it is 30%...but starting from where?...Should we expect next year to be 30% better than this year...or did we draw a "line in the sand" and start with this quarter? That's how I took it. Thirdly...short and intermediate term...NITE has a BIG problem I haven't seen discussed on the thread yet...namely rotation in ownership...6 months ago, NITE was considered -- rightly or wrongly -- a backdoor internet play. Their "investors" were momentum players, aggressive fund managers, etc...now these people are mostly out, or in the process of getting out. So whose hands do they flow into? They are officially in the "financial services" industry, but NITE has proved itself to be much more volatile than that group as a whole. (Many of the telcos are going thru the same thing right now.) So they're not an internet play, not a momentum play, certainly not a growth play -- (they're shrinking), and not a value play...so it is "clearly ambiguous" as to what cubby-hole NITE belongs in right now. Fourthly...I think "free cash-flow" is a much more relevant valuation yardstick the its PE ratio..currently NITE trades at about 35X FCF...which is approximately double the rest of it's sector. Yes, it has better growth than its brethren in the sector, but NITE's market share seems to have peaked back in Spring at around 19%...it has been giving up about 1% of that each month since May (it is however, showing good signs of "basing" here in OCT...now in the 14-15% range.) The point is, they have a shrinking piece of a very volatile pie...the market rarely puts a premium on such situations. the dodger PS -- I want to make it clear that I LIKE Knight long-term...I got in around the mid-thirties, but sold on the day of their dismal earnings announcement last week. I'm looking for a re-entry point, but after the misguidance by Pasternak, I think the prudent thing to do is take a "wait-and-see" attitude.