Instinet Meets Earnings Estimate, but Top Line Falls Short

Trading services provider Instinet ( INET) met Wall Street's earnings estimate for the latest fourth quarter, but revenue came in short of the consensus target.

Net income totaled $45.7 million, or 18 cents a share, compared with $36 million, or 17 cents a share, in the same quarter of 2000. Excluding investment gains, restructuring costs and excess insurance recoveries, the company earned 14 cents in the latest fourth quarter.

Transaction fee revenue for the fourth quarter was $320 million, down 16% from $380.7 million in the comparable period a year earlier. Total revenue fell 10.5% from last year to $350.3 million. Analysts were expecting the company to earn 14 cents on revenue of $363.5 million, according to First Call.

"Market conditions continue to be difficult ... and we are taking decisive action to address competitive pressures in the Nasdaq market and enhance our global brokerage offering," the company, which is majority-owned by news and information group Reuters ( RTRSY), said in a press release. "We expect our actions will impact earnings in the near-term but will position Instinet for improved profitability and revenue growth beginning in the second half of 2002."

Customers executed 17.2 billion U.S. equity shares through Instinet in the fourth quarter, up 10.8% from the third quarter but down 16% from the fourth quarter last year. Instinet's market share of Nasdaq-listed volume was 11.7% in the fourth quarter, compared with 13.5% in the previous quarter and 13.9% in the year-ago fourth quarter. The company claimed 3.2% of the market share for exchange-listed stocks in the fourth quarter, up from 3% in the third quarter and flat with the year-ago quarter.

Also in the latest fourth quarter, compensation and benefits expenses fell 23% from last year, to $86.4 million. Instinet's fourth-quarter expenses were at their lowest level since the first quarter of 2000.

"Through continued efforts to improve system and network efficiencies and reduce staff levels in a number of areas, we intend to further reduce our annual fixed-cost run-rate by approximately $60 million over the course of the first and second quarters of 2002," the company said. As a result of the moves, the company expects to record pretax restructuring costs of about $25 million in the first half of 2002.

On the conference call following the earnings release, Instinet executives said they believe the company's Nasdaq market share is stabilizing. The company also plans additional staff reductions this year, from about 2,000 employees currently to 1,800 by the middle of the year. Instinet cut more than 100 jobs in 2001.

Shares of Instinet ended regular trading up 22 cents, or 3.1%, to $7.42. The company went public last May at a price of $14.50 a share. Since then, the stock has lost about 44% of its value.

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