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Non-Tech : E*Trade (NYSE:ET) -- Ignore unavailable to you. Want to Upgrade?

To: Scott Stents who wrote (2758)	4/8/1998 9:25:00 AM
From: jim detwiler	Respond to of 13953

real analysis and $40 plus targetú ETrade reported 2Q98 earnings yesterday of $0.15 per share matching Street consensus. Revenues for the quarter were $2.5 million,4.5% below expectations, but stronger than anticipated gross margins and decreased G&A expenses enabled ETrade to offset this slight revenue shortfall. ú ETrade expanded its customer base by a healthy 23% in the quarter by adding 80,000 new accounts to bring the total customer account base to 400,000. Additionally, pushed by a strong market, ETrade also reported significant growth in its total customer assets which were up a healthy 30% in the quarter from $7.8 billion to over $10 billion. it should be noted that ETrade has continued to grow and remain quite profitable even in the face of these determined competitive attacks. Assets under management grew 30%, almost twice as fast as the market, indicating that net asset inflows were significant in the quarter. In addition, margin balances were up a healthy 17% in the quarter. Both of these statistics, along with the growth in accounts, are early signs that the company is making progress in its goal to build a broader customer base and a business model that is less dependent on transactions revenue. The Company also announced significant progress in expanding its International operations with the signing of 4 new agreements and the formation of a separate International division. While this division will probably not make a big revenue contribution in the short term, it will more than likely add to the long term franchise value of the Company. The real test for ETrade will come over the next two quarters. The launch of Destination ETrade will mark the formal launch of the company's emerging "mid-market" strategy and will represent a chance for ETrade to gain the initiative in the online trading wars. Making any judgement about the success or failure of ETrade's new business strategy before the Company has had time to fully execute it would be premature. We continue to believe that over the long term ETrade is putting in place the right strategy to build a successful "mid-market" firm and take advantage of tremendous promise of online financial services. ú Overall, this quarter was largely in-line with our expectations given that this quarter has the fewest trading days of the year (61) and that ETrade continues to let other lower price rivals outspend it on advertising. The real test for ETrade will come in the next two quarters as it launches its new Destination ETrade site and expands its product and service offerings. Based on this in-line report, we are making no changes to our 1998 EPS estimates, price target, or rating. Comment Transaction Revenue 37.78 40.75 Appears to have been driven primarily by the addition of fewer than expected core customer accounts. International Revenue 1.59 .05 The increase is due to recognition of revenues from the four international agreements that ETrade signed. # of Accounts 400 370 Given the lower than anticipated trading volumes, it's clear that the higher than expected account growth was due to strong growth of the less active OptionsLink accounts. Revenue Per Trade 23. 66 23.08 We suspect that payments for order flow were slightly higher than expected and that the strong market increased options volumes. Gross Margins 54.5% 51% Excluding estimated interest revenue from offering proceeds this margin was 52.8%, which is closer to our estimate. Sales & Marketing 10.6 8.4 Increased sales and marketing was likely due to higher expenses associated with closing sponsorship and international deals. Technology 5.2 5.0 In-line with expectations. Indicates that most of Destination E*Trade technical expenditures were made in previous quarter. G&A 3.897 5.022 Sequential decline likely driven by tighter expense controls, slower growth in headcount. Tax Rate 35% 39% The Company possibly benefited from tax treatment of greater than anticipated International Revenue.