Thread ----Two important comments ---Mary Meeker and the bottom paragraph -----Charles Schwab Corp.
The Wall Street Journal -- April 16, 1999
Schwab, DLJ's First-Quarter Earnings
Benefit From Surge in Online Trading
----
By Rebecca Buckman
Staff Reporter of The Wall Street Journal
The continuing explosion in stock trading online helped first-quarter earnings at leading Internet
brokerage concern Charles Schwab Corp. and at Wall Street firm Donaldson, Lufkin & Jenrette
Inc., which analysts say is smartly leveraging its online unit, DLJdirect.
Schwab, San Francisco, said its earnings more than doubled from last year, while DLJ said profit fell
9.3% due to weakness in junk-bond underwriting compared with a year-earlier results. But profit
was strengthened by its stock-clearing and bond operations, as well as its small online-trading
business, for which DLJ is about to issue a tracking stock.
Schwab had net income of $142.9 million, or 34 cents a diluted share, up from $68 million, or 16
cents a share, in the year-earlier quarter. Revenue rose 57% to $951.6 million.
DLJ, meanwhile, posted net income of $121.7 million, or 84 cents a diluted share, compared with
$134.2 million, or $1 a share, a year earlier. Revenue was flat at $1.49 billion, but DLJdirect revenue
nearly doubled to $47 million. Profit nearly doubled from the fourth quarter, as DLJ continues to
recover from an industrywide trading slump in 1998's third quarter.
DLJ is trading akin to an Internet stock. Even though the company's profit beat the First Call
consensus estimate by 14 cents a share, shares fell $7.9375, or 8.5%, to $85.0625, in tandem with
the drop in many big Web names. Even after yesterday's pullback, DLJ's stock price has more than
doubled since the start of the year.
Schwab, whose earnings topped the First Call estimate by a penny a share, fell $14.25, or 10%, to
$124, still more than double its price at the end of 1998.
Analysts said investors were taking profits in many highflying Internet stocks, particularly after
influential Morgan Stanley Dean Witter & Co. analyst Mary Meeker predicted some temporary
slowness in the sector during the next couple of weeks. She made her comments at an internal
meeting.
Dean Eberling, an analyst with Putnam, Lovell, de Guardiola & Thornton Inc., said DLJ's recent
stock movement "really reflects not the earnings per se, but the potential value of DLJdirect." DLJ
should announce a proposed price for its offering of DLJdirect tracking stock in the next two or three
weeks, DLJ President and Chief Executive Joe L. Roby said.
Though DLJdirect's pretax profit of $11 million represents just about 6% of the parent company's
pretax earnings, one person close to the company believes DLJdirect's value may reflect $20 or more
of the company's current stock price.
The online unit has about 590,000 total accounts, making it the seventh-largest U.S. Internet broker,
with just under 4% market share. Its total customer assets stand at $11.2 billion, less than half the
new assets Schwab snared in the first quarter.
Though parent DLJ's profit was lower than 1998 earnings, it got a lift from strength in the firm's
bond-trading department and its business advising companies on mergers and acquisitions.
Schwab, which has a Nasdaq Stock Market trading business but caters mainly to individual
investors, attributed its sturdy profit growth to a surge in assets from individuals. The company took
in $28 billion in net new customer assets, bringing its total to $542 billion.
By comparison, Merrill Lynch & Co., which reported results earlier this week, captured $9 billion in
net new customer assets in its U.S. private-client business in the quarter. Global new client assets,
including those from institutions, were $36 billion for the period, including market appreciation, a
Merrill spokesman said.
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