E*Trade squeezes more profit from weak account growth (1Q05 earnings results)

Apr.21.05 | About: E*TRADE Financial (ETFC)

E*Trade (ticker: ET) met consensus EPS estimates by growing operating income significantly more than revenue (14% versus 5%). Profitability per account is rising, but account growth is weak. Details:


Q1 Results
(all percentage changes and comparisons are year on year, unless stated otherwise)

  • EPS of $0.24 in line with consensus.
  • Net income of $92.0 million up from $88.5 million.
  • Net revenue of $420 million up 5% percent (and 3% sequentially).
  • Revenue break-down: brokerage $241 million, down 8% and , 57% of total revenue; bank $179 million, up 30%, and 43% of total revenue. Retail trading commissions accounted for 20% of total revenues, down from 28%.
  • Consolidated operating income of $135 million up 14% (and 22% sequentially).
  • Daily average revenue trades down 14% to 135 thousand (on 2% fewer trading days).
  • Average commission per trade down 10% to $10.34.
  • End of period margin debt up 6% to $2.27 billion.
  • 35 thousand net new accounts; total investing accounts (end of period) up 3% to 2.975 million, bank deposit/lending accounts flat at 642 thousand.
  • Assets per customer up 8% to $32,754.
  • Revenue per customer up 4% to $145.
  • Income per customer up 13% to $47.
  • Average number of products per customer up to 1.9 from 1.7.
  • Net interest spread 220 basis points, up from 185 basis points.

Guidance

  • Maintaining full year EPS guidance of $0.93 to $1.08, including expensing options in Q3.
  • Average commission per trade expected to fall to $9.30 to $9.70 in Q2 and for the remainder of the year.

Quick comment:

E*Trade is making more money because it's increasing assets, revenue and profits per customer. But account growth is anaemic: 3% year over year growth in brokerage accounts, flat number of bank accounts.

ET chart below.
Et_10