Updated from 3:37 p.m. ET
With the patience only a parent can have,
is letting its money-spending kid stick around the house a while longer.
The online broker on Tuesday said that it would keep
, the personal finance and account aggregation site, on its books for now, spending $30 million to $40 million during the first two quarters of fiscal 2001 to run the money-losing service aimed at consumers and now businesses as well.
Ameritrade's stock fell 81 cents, or 5.2%, to $14.69 a share.
Ameritrade has been slowly
changing its tune from last year, when it was talking about an initial public offering of the site, and early this year, when it tried to raise outside financing. Ameritrade said there were offers, but it wasn't able to get as much as it wanted for a stake in OnMoney. Now it will take a six-month hiatus from looking for investors and focus on building the business.
Jack McDonnell, Ameritrade's brokerage president, said during an interview that OnMoney will complement the brokerage. The two will launch a co-branded site for Ameritrade customers. "Ameritrade has several options with OnMoney, and I think all of those options are pretty good. We are investing in OnMoney for the longer term," McDonnell said.
As Ameritrade delves deeper into OnMoney, it's straying from its traditional focus on the deep-discount brokerage business. (In its
earnings announcement Tuesday, Ameritrade touted its strength as a low-cost provider of trades.) Other recent moves, such as targeting independent financial advisors as customers, also show that Ameritrade is redefining its so called focused-and-deep strategy.
A broader strategy has worked for some online brokers. Competitor
, for instance, came in with earnings above expectations last week primarily because it diversified into banking. But with OnMoney expected to stay in the red until the end of 2002, its ability to produce for Ameritrade is questionable.
Joe Ricketts, Ameritrade's Chairman and CEO, said during the company's conference call Tuesday that OnMoney will represent a valuable long-term investment for shareholders. The site had 600,000 registered users at the end of the fiscal fourth quarter, up from 400,000 in the previous quarter, and is expected to produce $1.2 million to $1.8 million in revenue during the fiscal first quarter, which ends in December, primarily from e-commerce and advertising, according to its chief, Vincent Passione.
Several sell-side analysts said that they hadn't worked spending for OnMoney into their earnings expectations for fiscal 2001. The consensus estimate for the year is 83 cents a share, according to
. They'll have to cut that by about one-third though if they count on $60 million to $80 million in OnMoney costs. In the year ended Sept. 29, Ameritrade spent $78 million on OnMoney, pushing Ameritrade to a net loss of $13.6 million. But excluding OnMoney, Ameritrade earned $38.2 million from its brokerage operations, and that's the kind of gain Wall Street would like to see.
"All things being equal, we wish OnMoney was off Ameritrade's books. It would just give a clearer picture of Ameritrade's underlying business," said
analyst Greg Smith. (He rates the stock a buy, and his firm hasn't done underwriting for the company.)
The quarter, Smith said, was fairly good in that Ameritrade beat expectations as it broke even instead of losing the expected 3 cents a share. But the brokerage also showed much more sensitivity to the trading slowdown than some of the other online brokers and had a steep decline in account growth -- 61%.
McDonnell said that customer account growth had dropped because the company shifted ad spending to mid-September for the Olympics and to October for the start of the new television series season. With a delay of four to six weeks for new account openings after an advertising push, he said, that pushes those accounts into the fiscal first quarter. The fact that the spending occurred late in the month could explain why accounts didn't rise as much as analysts expected, said McDonnell, who added that Ameritrade is more concerned about growing accounts on an annual than quarterly basis.
The decreased fiscal fourth quarter ad spending had another result though too -- it helped Ameritrade beat the consensus forecast. At $33.6 million in ad spending for the quarter, the company was below analysts' estimates of more than $40 million based on the company's indication that it would spend around $200 million on ads in 2000.