) is expected to announce earnings for the third quarter of 2012 on
Thursday, October 18. The online brokerage firm has been hit
hard by a slump in investor confidence which has had an adverse
effect on Daily Average Revenue Trades (DARTs). Net income in the
second quarter fell by 16% compared to the same period in 2011
primarily due to a 6% year-on-year decline in DARTs during the
three months. This trend continued in the third quarter as trading
activity for July was down by 11% from last year with a whopping
37% year-on-year decline in August. The bottom-line for the third
quarter is expected to be influenced by the tepid trading activity
observed during the period.
price estimate for E*TRADE is $8
, 10% below the current market price.
See Our Full Analysis for :
Despite the fall in DARTs, E*TRADE has been successful in
attracting clients to its online platform. The company lost 4,363
brokerage accounts in July, but opened 18,034 new accounts in
August, ending the month with 2.9 million brokerage accounts. As
the markets in the U.S. and Europe are quite volatile, more people
are tempted to invest and put their money to work. Acquiring new
accounts will greatly help E*TRADE as the economy improves and
trade volumes pick up.
We currently forecast a steady increase in E*TRADE brokerage
accounts to 3.8 million by the end of our forecast period. There is
a potential upside of 10% to our price estimate should the growth
rate be higher than expected, allowing E*TRADE to open around 5.5
million brokerage accounts during the same period.
What Are The Options
Although DARTs have been falling in the current year, options
trades have provided some signs for optimism. In the second
quarter, the volume of options trades increased by 20%
year-on-year, accounting for almost a quarter of the total trades
during the quarter. We expect this trend to continue as market
uncertainty and prudence encourage clients to turn to options to
maximize (or safeguard) their returns.
Mobile trades in the second quarter increased by 4% over 2011,
accounting for 7% of the total trades executed via E*TRADE during
the period. Affording greater convenience and the ability to trade
on the go and keep pace with the volatile markets, mobile trades
are expected to gain popularity in the future.
We currently forecast the average number of annual trades per
E*TRADE account to remain suppressed through the next few years but
pick up as the global macro-economic conditions improve in the long
E*TRADE is focusing on acquiring client assets as it is seeing a
flat yield curve due to low interest rates. The company reported a
16% year-on-year increase in total customer assets, reaching $200.3
billion at the end of August. The recently introduced online
program, OneStop Rollover, will allow individual investors to
invest 401(k) savings from a previous employer into a
professionally-managed portfolio and will allow E*TRADE to build on
its $33 billion assets spread across 800,000 retirement accounts at
the end of the second quarter.
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