Tuesday July 21, 4:30 pm Eastern Time
Company Press Release
SOURCE: E*TRADE Group, Inc.
E*TRADE Reports Third Quarter Earnings Increase of
114 Percent on Revenue Growth of 68 Percent
Accelerating An Aggressive Growth Strategy; Now Among Top Ten Financial
Sites
PALO ALTO, Calif., July 21 /PRNewswire/ -- E*TRADE Group, Inc. (Nasdaq: EGRP - news), a
leading branded provider of online investing services, today reported revenues of $62.3 million for its
third fiscal quarter of 1998, ended June 30, the 24th consecutive quarter of revenue growth.
Revenues were up 68 percent from $37.0 million in last year's third quarter and up 17 percent from
$53.3 million in the second quarter of this year.
Net income for the third quarter rose 114 percent to $6.6 million or $0.16 per share, from $3.1
million or $0.09 per share in last year's third quarter and up seven percent from this year's second
quarter income of $6.1 million or $0.15 per share.
''Our excellent financial performance was spurred by a surge in activity on our Web site,'' said
Christos M. Cotsakos, President and Chief Executive Officer of E*TRADE Group, Inc. ''Measured
by traffic, E*TRADE is now one of the top three financial services destination sites on the Internet
and one of the top ten financial destination sites of any type, according to Media Metrix, Inc., a New
York-based Web research firm. During the quarter the average value of securities traded
electronically through E*TRADE was $1.5 billion per week, almost double the $800 million during
the same quarter in 1997.''
Total pages viewed at the E*TRADE Web site jumped to an average of 2.2 million per day, up 57
percent from 1.4 million per day in the second quarter. The site hosted 22.6 million visits during the
quarter and was visited by an average of 51,107 unique customers per day. Average customer time
on the site continued to be strong at roughly 4 hours per month.
''We expect overall traffic to increase even more in the fall when we aggressively launch our new
destination Web site with free content and financial tools for the general public,'' said Cotsakos. The
new E*TRADE destination site which has now been rolled out to all 459,000 customers will be
publicly launched in early September through a major multi-media advertising and direct response
campaign. Increased traffic will come from visitors, who can access all the information on the site;
members, who can receive enhanced research, track their portfolios and have access to E*TRADE's
new community features which include secure e-mail and chat rooms; and customers, who can place
trades, transfer funds, write checks, as well as access premium services such as alerts, IPOs and
institutional research. Both this site and E*TRADE's new high performance proprietary Stateless
Architecture(SM) have been well received by customers and industry analysts alike.
Accelerating An Aggressive Growth Strategy
''We have nearly $600 million available in cash and are one of the best capitalized online investing
companies in the world,'' said Cotsakos. E*TRADE's nearly $200 million in cash and equivalents on
the balance sheet will be augmented by $400 million in cash under the terms of the recently
announced investment in the Company by SOFTBANK CORP., which is adding a 27.2 percent
strategic interest in E*TRADE to its substantial portfolio of holdings in other premier Internet
companies, such as 31 percent of Yahoo!, 35 percent of GeoCities and 71 percent of Ziff-Davis, the
company behind the ZDNet Web site. The SOFTBANK financing is expected to close in early
August.
''We are now implementing our growth strategy to establish our new Web site as a premier global
online investing destination site and financial services hub, one that will be bookmarked by customers.
Concurrent with the introduction of this new site, we will begin to leverage alliances such as the one
we recently forged with America Online, as we pursue our goal to substantially increase the rate of
customer acquisition and grow market share,'' said Cotsakos.
Company plans call for heavy investments and expenditures over the next several quarters, including
aggressive marketing programs to build brand and accelerate the growth of E*TRADE's customer
base; strategic acquisitions; and further infrastructure enhancements and research and development
activities in support of the E*TRADE global network.
''We are operating from a position of strength. Our current model has proven to be highly effective,
as our business is flourishing and our financial position is solid. While our expenditures are expected
to result in losses over the near term through the next several quarters, they are planned to
significantly add to long-term shareholder value as we continue to secure our leadership position in
electronic commerce,'' said Cotsakos.
''Once again, we are changing the rules of engagement in this rapidly evolving market,'' said
Cotsakos. ''With the industry as a whole at a major inflection point, E*TRADE is the first
all-electronic provider of Internet investing services to make the substantial financial commitment
required to lead the industry to its next level of growth. Our strategy creates significantly higher entry
and secondary barriers than the early pioneering operating model that launched E*TRADE and its
subsequent imitators. By moving first to occupy the high ground in the coming campaign for the
loyalty of the online investor, we expect to create a strategic and competitive advantage that will be
challenging for others to match.''
Traditional Business Drivers Remain Strong
During the third quarter, the strength of the E*TRADE brand led to a dramatic rise in the Company's
share of the U.S. total equities and options markets. E*TRADE's share of the equities market, which
increased 26 percent sequentially over the second quarter of fiscal 1998, has risen every quarter
since the Company went public in 1996. Despite market volatility, E*TRADE customers continued
to display strong activity, with total transaction volume growing by 11 percent sequentially over the
previous quarter.
The Company reported 1,837,000 transactions for the quarter or 29,155 per day, up 79 percent
from 1,043,000 or 16,300 per day in last year's third quarter and up 11 percent from 1,597,000 or
26,200 per day in this year's second quarter. Net new accounts increased by 56,000 to a total of
459,000, up 153 percent from 182,000 one year ago and up 14 percent from 403,000 at the end of
this year's second quarter. The annualized account retention rate remained at roughly 95 percent
during the third quarter. Customer assets under management at the end of the quarter totaled $11.2
billion, up 104 percent from $5.5 billion one year ago and up 11 percent from $10.1 billion at the
end of the second quarter.
About E*TRADE
A leading branded provider of online investing services, E*TRADE has established a popular
destination Web site for self-directed investors. The Company offers independent investors the
convenience and control of automated stock, options, and mutual funds order placement at low
commission rates, along with a suite of value-added products and services that can be personalized,
including portfolio tracking, Java-based charting and quote applications, real-time market
commentary and analysis, news, and other information services.
Customers can access E*TRADE at etrade.com on the Internet as well as through
WebTV; via Prodigy; via AT&T Worldnet; via Microsoft Investor; by GO ETRADE on
CompuServe; with the keyword ETRADE on America Online; via personal digital assistant; and via
the TELE*MASTER interactive telephone system. E*TRADE Securities, Inc., and its parent
company E*TRADE Group, Inc., are headquartered in Palo Alto, Calif.
E*TRADE is a registered trademark of the Company. TELE*MASTER is a trademark of
E*TRADE Securities, Inc. All other trademarks are properties of their respective owners. The
statements contained in this news release that are forward-looking are based on current expectations
that are subject to a number of uncertainties and risks, and actual results may differ materially. The
uncertainties and risks include, but are not limited to, changes in market activity, market acceptance
of the new E*TRADE Web site, anticipated increases in the rate of new customer acquisition,
seasonality, the development of new products and services, the enhancement of existing products and
services, competitive pressures, system failures, economic and political conditions, changes in
consumer behavior, and the introduction of competing products having technological and/or other
advantages. Further information about these matters can be found in the information included in the
annual report filed by the Company with the SEC on Form 10-K and quarterly reports on Form
10-Q.
E*TRADE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues:
Transaction revenues $43,418 $27,558 $118,880 $72,350
Interest - net 14,136 6,775 38,789 15,646
International 3,045 2,000 4,665 4,000
Computer services and
other 1,717 703 4,421 2,264
Net revenues 62,316 37,036 166,755 94,260
Cost of services:
Cost of services 28,722 17,500 75,749 43,123
Registration charge -- 4,334 -- 4,334
Total cost of
services 28,722 21,834 75,749 47,457
Operating expenses:
Selling and marketing 11,588 5,137 30,251 16,237
Technology development 5,605 2,501 15,762 7,031
Acquired in-process
research and development -- -- 2,756 --
General and
administrative 6,200 2,442 14,862 9,425
Total operating
expenses 23,393 10,080 63,631 32,693
Total cost of
services and
operating expenses 52,115 31,914 139,380 80,150
Pre-tax income 10,201 5,122 27,375 14,110
Income tax expense 3,641 2,054 9,783 5,728
Net income $6,560 $3,068 $17,592 $8,382
Basic net income
per share $0.17 $ 0.10 $ 0.45 $ 0.28
Diluted net income
per share $0.16 $ 0.09 $ 0.42 $ 0.24
Shares used in
computation of basic
net income per share 39,290 30,814 39,028 30,080
Shares used in
computation of diluted
net income per share 41,712 34,493 41,475 34,719
E*TRADE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
June 30, September 30,
1998 1997
(Unaudited)
ASSETS
Current assets:
Cash and equivalents $21,422 $21,814
Cash and investments required
to be segregated
under Federal or other
regulations 5,000 15,001
Investment securities 172,417 191,398
Brokerage receivables-net 1,131,081 724,365
Other assets 12,509 4,744
Total current assets 1,342,429 957,322
Property and equipment-net 41,176 18,802
Other assets 20,177 13,779
Total assets $1,403,782 $ 989,903
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Brokerage payables $1,034,430 $ 681,106
Bank loan payable 4,000 9,400
Accounts payable, accrued
liabilities and other 63,650 18,122
Total liabilities 1,102,080 708,628
Shareholders' equity 301,702 281,275
Total liabilities and
shareholders' equity $1,403,782 $ 989,903
SOURCE: E*TRADE Group, Inc.
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