Great Quarter for OptionsXpress

Part of my investment thesis for OptionsXpress (OXPS) was that market volatility had increased dramatically in the 1st and 2nd quarters of 2007 and increased volatility is good for online brokerage firms -- it leads to more trading. However, in my view few, if any, of the online brokerage companies had that volatility reflected in their stock.

Thursday's earnings report from OXPS appears to prove out that theory. After having been somewhat static for a couple of quarters, they really hit one out of the park this quarter.

-- Net new accounts grew by 13% sequentially and by 21% year over year.
-- Daily ave revenue trades (DARTs) increased 15% to record levels
-- Earnings increased 29% year over year to $0.37 per share
-- Earnings exceeded analyst expectations by $.02 per share

Advertising per new account was around $300 which is up significantly from previous years, but less than the previous quarter. Going into the investment, I knew it was going to continually cost more to get each new account, because the "low hanging fruit" has been picked. However, I feel this higher cost has led to the current buying opportunity in the stock and is reflected in earnings estimates.

Cash on hand continues to be very large at over $9 per share. With no debt and large cash reserves, management instituted a quarterly cash dividend.

Overall it was a great quarter for OXPS, and with TD Ameritrade (AMTD) also exceeding expectations by $.01 per share, likely a good sign for the online brokerage industry as a whole.