Updated from 10:27 a.m. EST
( EGRP), which helped pioneer an explosion in do-it-yourself trading for the masses over the Internet, reported a quarterly loss Wednesday that was more than triple the loss a year earlier, but was still better than expected.
For the first quarter ended Dec. 31, the online brokerage reported a net loss from ongoing operations of $38.1 million, or 15 cents a diluted share, compared with a loss of $11.6 million, or 5 cents a share, a year earlier. The consensus estimate of analysts polled by
First Call/Thomson Financial
was a net loss of 21 cents a share.
Including all non-operating items, the total net loss for the quarter came to $5.2 million, or 2 cents a share. The Menlo Park, Calif.-based company recorded a non-operating charge of $3.8 million after tax, or 2 cents a share. Also, E*Trade realized after-tax gains of $19.9 million, or 8 cents a share, for the sale of investments and $16.8 million, or 7 cents a share, for participation in venture funds.
E*Trade was down 1 3/4, or 6%, to 26 1/8 in afternoon trading Wednesday. (It closed down 1 11/16, or 6.05%, at 26 3/16.)
"Though the quarter was outstanding overall, the number was not a blowout relative to expectations," analyst Russell Keene of
Putnam, Lovell, de Guardiola & Thornton
said. He added that the shares would likely be up if 2 cents a share was the net figure, minus non-operating items. Keene rates E*Trade a hold and his firm has done no underwriting for the company.
Revenue rose to $246 million from $115.9 million a year ago, beating the consensus estimate of $206 million to $207 million.
"That was driven by commission revenues which were driven by heavy volumes," said analyst Tim Butler of
Pacific Crest Securities
. "E*Trade's volume growth exceeded that of the market, which says they're picking up share relative to the other players." Overall market volume in the fourth quarter grew by 26%, while E*Trade grew by 66%.
Customers are also opening their accounts with larger balances at the same time that assets held in accounts have increased, to $44 billion on Dec. 31 from $28 billion in the fourth quarter of fiscal 1999. "The material rise in assets per account plus the higher-than-expected volume means that E*Trade is picking up traction and becoming more mainstream," Butler added. Butler rates E*Trade a strong buy and his firm has done no underwriting for the company.
The company had said in late 1998 that it anticipated losses over the next several quarters because of heavy spending on advertising and marketing to attract customers. Advertising spending in the latest quarter more than doubled to $119.5 million.
E*Trade also said it processed a daily average of 133,000 trades during the quarter, compared with 43,000 a year ago and 80,000 in the fourth quarter. The company said 330,000 new accounts were opened in the quarter, compared with 132,000 a year ago and 310,000 last quarter. The number of new accounts now totals 1.9 million.
"The growth in customer accounts is encouraging, given the heavy advertising and marketing spending," Butler commented. "There has been skepticism over whether that spending would result in customer and account growth. This proves it's been effective."
"We have been able to maintain one of the lowest cost per accounts in the industry
$289, while competitors are spending upwards of $700 per account," said Christos Cotsakos, chairman of the board and chief executive of E*Trade.
"The big challenge now will be aggregating assets," Butler explained. "By that I mean encouraging customers to build their brokerage accounts and developing cross-selling, or selling banking products to brokerage customers and vice versa. This way, E*Trade will be able to attract a broader array of customers."
The completion on Jan. 12 of E*Trade's acquisition of
Telebanc Financial Corp.
, the parent company of
, the largest pure-play Internet bank in the U.S., should do much to help E*Trade achieve that goal. Through the bank, renamed
, customers can do online banking through an
-insured cash management account as well as online investing.
Keene is not so sure that E*Trade's model will work. "I don't buy into the fact that a purely electronic model will succeed when targeting the mass market," he explained, adding that "the infrastructure of the Internet is not there and our society hasn't gone through the cultural transition. They are ahead of their time." Keene feels that
joining up with
( SCH) buying
indicates that an electronic presence needs to be complemented by a non-electronic presence.