E*Trade

( EGRP) surprised Wall Street Wednesday by reporting its revenue had more than doubled in its fiscal second quarter, raising its operating profits to the break-even point, as online trading and new accounts surged.

The Menlo Park, Calif.-based online brokerage firm said its profits from operations totaled $1.3 million, or broke even on a per-share basis, compared with a loss of $13.3 million, or 5 cents a share, from the year-earlier quarter.

Shares of E*Trade initially jumped as much as 1 13/16, or 8%, to 25 1/4, but slid back in midday trading to 23 7/8, pulled down by weakness in the overall

Nasdaq

market. (E*Trade closed the day down 11/16, or 3%, to 22 3/4.)

"They had a great quarter and were off the charts in transaction growth," said Andrew Collins, an analyst at

ING Barings

, who rates the stock a strong buy. His firm has done no underwriting for E*Trade. "They met break-even a lot sooner than expected." Collins said he didn't expect that to happen until 2001.

Transactions on E*Trade's site more than tripled in the quarter, to 14.4 million, while the company added 603,000 new active accounts.

Net revenue, adjusted for interest expenses, rose to $407 million in the latest quarter from $162 million a year earlier.

E*Trade said its net loss for the quarter totaled $23.2 million, or 8 cents a diluted share, compared with net income of $8.5 million, or 3 cents a share, a year earlier.

Analysts had been expecting a loss of 16 cents a share, according to

First Call/Thomson Financial

, with the smallest estimated loss being 9 cents a share.

The bottom-line results in both quarters reflected the inclusion of one-time items. In the second quarter, the company had after-tax charges related to merger costs of $21.8 million, or 7 cents a share, while realizing a gain of 3 cents a share from selling $7.8 million of its investment portfolio. In addition, E*Trade took a loss of $10.5 million, or 4 cents, from unrealized losses in its participation in venture funds.

E*trade said its net cost of acquiring each new account was $256, an amount that the company asserted was one of the lowest in the industry, even though its advertising budget more than doubled, to $177.5 million, from the second fiscal quarter of 1999.

"Results were well beyond my wildest expectations," said Greg Smith, a

Chase H&Q

analyst, who rates the stock a buy. Smith had been expecting a loss of 16 cents and just 380,000 new accounts. His firm recently underwrote a convertible bond offering for E*Trade and was part of the initial public offering.

Smith acknowledges that E*Trade paid for that growth with an expensive television ad-campaign that contributed to the highest advertising budget in the industry.

Over the past year, shares of E*Trade have declined more than 60%, as the stocks of online brokerage companies have fallen out of favor.

National Discount Broker

( NDB) has fallen 54% and

Ameritrade

(AMTD) - Get Report

declined 69% over the same period.

"The bubble has burst in terms of the e-finance sector a long time ago," Collins of ING Barings said. "I think that's why they represent a good value compared to the others in the Internet space. At these prices and with E*Trade breaking even, I like the valuations."

Collins began covering E*Trade last week with a strong buy and a 12-month target of 50 a share.

Transaction volume could suffer in the near term if the volatility in the Nasdaq market discourages individual investors.

"The Nasdaq fall helps them long term but not in the short term," Collins said. "Over time, speculation will be squeezed from the market place, and that allows a re-entry point for investors."

Collins doesn't think E*Trade will stay above the break-even point next quarter, but he said the company's fiscal third quarter was already "off to a great start in terms of volumes and volatility."