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

To: Robert Giambrone who wrote (2999)	6/4/1998 11:52:00 AM
From: RetiredNow	Read Replies (1) \| Respond to of 13953

thanks

To: Robert Giambrone who wrote (2999)	6/6/1998 7:13:00 AM
From: Robert Giambrone	Read Replies (1) \| Respond to of 13953

Analyst Calls for More Detailed ETrade Account Numbers : By Amy Olmstead Staff Reporter 6/5/98 10:09 PM ET In a piece that stands out for its critical tone, a Credit Suisse First Boston analyst is taking on ETrade Group (EGRP:Nasdaq) for what he considers a lack of clarity concerning its account numbers. But if ETrade changes its ways, the analyst believe it can boost its valuation. On Friday, Jim Marks, Credit Suisse First Boston's electronic banking and computer services analyst, titled his biweekly forum on trends and issues in the industry: "ETRADE: Information on Accounts not ENOUGH." In the frankly worded, two-page piece, Marks explained why he believes ETrade should smarten up its reporting of its account numbers. The problem: During the quarter ended in December, ETrade acquired the OptionsLink division of Hambrecht & Quist (HQ:NYSE). OptionsLink provides employee stock option and stock purchase plan services for corporate stock plan participants. With the transaction, OptionsLink customers also had access to ETrade's services. Marks suspects these new accounts are less active and thus provide only a small portion of revenue and earnings. As a result, he thinks they can't be valued the same way as accounts opened for trading. The report asks: "What's going on with ETrade? As the rest of the online brokerage industry surges forward, ETrade's transaction growth has stalled, with growth of only 1.5% in the first quarter compared to 20% sequential growth for the rest of the industry. That could be because growth in core accounts has slowed considerably. That may not be true, though. It could also be that core account growth remains strong, but the composition of the account base is changing, producing fewer transactions per account. One of these statements is true. Or both. Unfortunately for ETrade's valuation, analysts and investors don't have enough information to make this determination." In an age when many sell-side analysts are preoccupied with winning and keeping investment banking clients, Marks' report is unusually trenchant. Earlier this year, Tom Brown, a respected banking analyst at Donaldson Lufkin & Jenrette who didn't shy away from criticizing a company, was pushed out when DLJ hired a new team of financial-institution investment bankers. The investment bankers refused to work with Brown because of his critical bent. To be sure, there are some analysts who succeed despite their tough stands. Consider Merrill Lynch analyst Thomas Kurlak's recent tough take on Intel (INTC:Nasdaq). Credit Suisse First Boston hasn't acted as an underwriter for ETrade. Marks, who couldn't be reached for comment Friday, didn't lower his buy rating on ETrade. He wrote in the report that he believes the stock will treat investors well -- thanks in part to its strong brand and its Destination ETrade site to be unveiled this month. He also said the disclosure problem could be a result of the company's inexperience and he anticipates improvement. Marks' concern is that ETrade's lack of disclosure is causing investors to undervalue the company. In the past year ETrade stock has climbed only 17%. It is 53% below its peak of 47, hit on Sept. 30, 1997. In contrast, competitor Ameritrade Holding's (AMTD:Nasdaq) stock has risen 71% in the past year. (Ameritrade is also off its peak -- down 28% from 37 3/4 reached on Dec. 1, 1997.) ETrade see no problem with its accounts-reporting policy. "There are multiple channels through which customers can be acquired," says Stephen Richards, senior vice president of corporate development and new ventures. And the argument that accounts from the OptionsLink deal are the reason for ETrade's slow transaction growth rate is incorrect, Richards says. Instead, he attributes the low transaction growth to the market's cyclicality. He also notes that ETrade wants to cut its dependence on transactions by diversifying its financial services and selling ads and various subscriptions to its Web content. ETrade's strategy means less emphasis should be placed on the source of accounts, Richards says. But because of ETrade's refusal to differentiate between account sources today, when transactions are the bulk of earnings, Marks is using an estimate to get what he considers a more accurate picture of account and transaction growth. He assumes there are 100,000 OptionsLink-related accounts out of more than 400,000 accounts ETrade had in the quarter ended in March. There definitely is a decline the company's transaction growth rate. In the quarter ended in September 1997, accounts grew 24% and transactions grew 48% sequentially. In the quarter ended in December, during which ETrade acquired the Hambrecht division, accounts grew 44% while transaction growth was only 1.6% sequentially. Then, in the quarter ended in March, ETrade's second quarter, there was a 24% increase in accounts from the previous quarter and total transactions increased only 1.5%. In contrast, in the same March quarter, Ameritrade's accounts increased 48% and trades increased 66% over the previous quarte