) seems to have a finger on the pulse of its customers. That would
explain the launch of the E*TRADE Community - the latest attempt by
an online brokerage firm to harness the power of social networking
for investors to "connect with each other, share ideas, and
validate their investment strategies". With many casual and retail
investors preferring peer outlooks to analyst reports while making
their investment decisions, this move can go a long way for E-Trade
in attracting new customers. While
Charles Schwab Corporation
) incorporated community features in 2008, whether competing online
brokerages Ameritrade (
) and Fidelity will follow suit with new feature launches remains
to be seen.
We have a
$18.14 price estimate for E-Trade stock
, a premium of about 15% to market price.
E*TRADE Community: The What and Why
E-Trade's new community feature is being provided to all retail
investors that have an online brokerage account with the company.
Just like other social networking websites, the platform allows
investors to join as a member and create an online profile -
although people with brokerage accounts can access the discussions
in the community space without having to specifically join as a
Members can provide their own opinions, understand the overall
sentiment regarding individual stocks, and even see which stocks a
particular investor has traded over a period of time. E-Trade also
claims that personal information about individual investors
(including names and account details) are adequately protected.
The Potential Upside for E-Trade's Stock is
Online brokerage firms are not very well differentiated. In the
recent past, competition has been fierce on commissions & fees,
types of investment products offered, research & advice for
investors, and customer service. And the technology has been
largely the same for all of them, with brokerages offering similar
interfaces for trading using a computer or mobile phone.
But community options may set E-Trade apart in the near future,
with more retail investors wanting to leverage opportunities and
insights distributed through social networks. E-Trade had about 2.7
million active brokerage accounts at the end of 2010, a number
dwarfed by the 8 million active brokerage accounts that each of its
competitors Schwab and Ameritrade had.
We currently project that E-Trade could grow its total number of
brokerage accounts by about 3% annually. But if the
social-networking platform does take-off, growth could be as high
as 10% annually, given the huge amount of churn among online
brokerage firms. In this scenario, the number of brokerage accounts
would nearly double in the next 5 years and represent an almost 10%
our $18.14 price estimate
, pushing our number close to $20.
See our full analysis and $18.14 price estimate