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

To: amic who wrote (5848)	4/9/1999 7:55:00 AM
From: Mr. Big	Respond to of 13953

Based on a comparison with EGRP, AMTD and NITE - NDB is worth $127 per share. Rumor that EGRP is considering NDB to enter the market maker business. Examine the following information that I pulled from the most recent 10Qs of NDB, EGRP, AMTD, and NITE. NDB Trailing P/E = 29 Market Cap = $511 million Revenues from trade commissions for Q ending 11/98 = $9.5 million Revenues from MM/trading for Q ending 11/98 = $35 million EGRP Trailing P/E = N/A (company is in red for last 4 quarters) Market Cap = $9.7 billion Revenues from trade commissions for Q ending 12/98 = $60 million AMTD Trailing P/E = 236 Market Cap = $5.5 billion (the company has added about $2 billion in last three days!!!) Revenues from trade commissions for Q ending 12/98 = $36 million ($23 million of AMTD's $61 million in Q revenues was INTEREST) NITE Trailing P/E = 76.6 Market Cap = $3.9 billion Revenues from MM/trading for Q ending 12/98 = $89 million PLEASE NOTE: the revenue numbers are were pulled from the last FILED 10Q as annual #s are obsolete give explosive growth of sector. NDB is a BOTH an on-line broker like AMTD/EGRP and a market-maker like NITE. For NEW INVESTORS – you are buying a lot more than you probably realized. NDB's VALUE AS ONLINE BROKER NDB is cleary undervalued given it's low p/e, high growth rate (the company just reported a 329% increase in quarter or quarter earnings), and low market value per account. However, currently EGRP and AMTD are valued largely based on their revenue – in particular, their commission revenue -- and the growth of that revenue. A quick look at last quarter's results show that EGRP's overall revenues were only about 50% higher than AMTDs. However, it's commission revenue (which excludes interest income) was nearly 100% higher – which is why EGRP's market cap. is about 100% higher than AMTD. I use commission revenue and not total revenue because this is the life-blood of the OLB business and the best measure of the financial performance of a OLB business. EGRP is now trading at 161X last quarter's trading revenue (which, if this quarter is annualized, is 40X annual revenues). AMTD is now trading at 153X last quarter's trading revenue (38X if annualized). NDB is currently trading at 53X last quarter's trading revenues (annualized = 13X revenues), which is 1/3 the value placed on EGRP and AMTD revenue. Granted, EGRP/AMTD may deserve a higher valuation given its larger market presence and growth rate. But how much is warranted? IMO -- given that NDB has a superior ranking in Barrons, is launching a new site in the next two weeks, and is about to go on a major advertising campaign – at most, they should trade at about a 30% premium to NDB, which is about 112.7X last Q's revenues of $9.5 million. CURRENT VALUE OF NDB AS OLB = $70 per share (For those of you who read the prior version of this post, the change in the share price reflects the dramatic increase in the market caps of AMTD and EGRP) NDB's VALUE AS MARKET MAKER NITE is a marker maker like NDB's unit, Sherwood Securities. As shown above, NITE's trading revenue was a little under 3X that of NDB. Yet, incredibly, NITE has a market cap of $3.9 billion vs. NDB's market cap of $511 million (760% more). NITE trades at 44X last Q's TRADING revenues; NDB trades at 14.6X last Q's trading revenue. Given that NITE pays for its order flow (last Q they paid $20 million or 25% of trading revenue), I don't believe NITE should trade at a tremendous premium. That said, IMO NITE is the biggest and most innovative, fast growing MM and, therefore, deserves a premium. So assuming, NDB trades at 50% of the current value of NITE, NDB's trading activities should be valued at 22X last Q's trading revenues. NDB VALUE AS MM = $57 per share Combined value of $127! From another Board...

To: amic who wrote (5848)	4/9/1999 9:09:00 AM
From: Oeconomicus	Read Replies (1) \| Respond to of 13953

amic & ecomm, re puts as a hedge, the problem is that the premiums are likely to be huge (I haven't looked in a few weeks, but would expect them to have risen sharply as the stock rocketed upward) and hedging for more than a short period can get very expensive. An alternative would be a zero cost collar, buying out of the money puts and paying for them by writing OTM calls. You still have some up and downside potential, but you are locked in within the range of the two strikes. You can't make the collar too tight or the IRS will consider it a constructive sale, but done right a collar allows you to defer the gain and to extend the holding period on the stock. Some brokers can also arrange for you to borrow most of the value of the stock, so you get to eat your cake too. Unfortunately, the only people at E*Trade who would have a clue about this are the execs who may have used collars themselves. You'd have to go to a full service firm or other advisor to get guidance to do it right. ecomm, nice problem to have, eh? Bob