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Short E-Trade Due To Creative Destruction From Robinhood App
- Silicon Valley Start-Up Robinhood will offer completely free trading for cash stock positions.
- This is an existential threat to E-Trade whose business is competing mainly on price.
- E-Trade's valuation and competitive position make it a better short than other discount brokers.
- When a company's bull-market-inspired expansion produces losses, angry shareholders and temporarily reduced animal spirits, CEOs love to talk about returning to "core competencies."
- Around 2010/2011, after the market rout, it was a popular phrase as executives tried to show that they should remain focused on their primary business rather than empire-building.
- We take a closer look at a firm that has returned to a simple model – E-trade Financial Corp.
E-Trade Turnaround On Track, Maintaining $23 Price Target
E-Trade Financial: A Turnaround Story With 40% Upside
E-Trade: Don't Throw The Baby Out With The Bathwater
E-Trade Rolls Out Commission-Free Trades On 93 ETFs
Today, 8:12 AM
- August DARTs of 146,165 fell 5% from July and 1% from a year ago.
- Net added brokerage accounts of 13,377 brings the total to 3.1M.
- Source: Press Release
- Previously: Trading activity flattens out at Ameritrade; fee-based balances rise
- ETFC flat premarket
Mon, Sep. 8, 11:01 AM
- E*Trade (ETFC +1.1%) earned $441M over the last 12 months, according to CFO Matt Audette, presenting at the Barclays Financial Services conference.
- Presentation slides
- The path to about $1B begins with interest rates, and a normal interest rate environment will boost revenue by $240M. Next are loan loss provisions which cost $70M in the last year falling to $0 as the legacy portfolio runs off. Servicing those legacy assets cost $43M last year, and that too should fall to $0.
- FDIC expenses cost E*Trade $93M last year and that's expected to fall to $47M as the company's risk profile improves.
- Finally, there's corporate interest expense of $114M dropping to $0 as excess bank capital is upstreamed to the parent and used to pay off corporate debt.
- Alongside the presentation, E*Trade today showed August DARTs of 146,165, down 5% from July and 1% from a year ago. Additionally, E*Trade Bank was approved to send another $75M upstairs to the parent company.
Thu, Aug. 14, 10:24 AM
- Alongside its initiation of Schwab with a Buy, Deutsche's Brian Bedell starts TD Ameritrade (AMTD +0.2%) with the same rating. Of note: The outsourced banking agreement with 41% owner TD Bank allows high returns on cash management without the capital burdens or credit risk, thus giving AMTD to room for buybacks and dividends. As with Schwab, the company has substantial leverage to higher interest rates.
- As opposed to its two competitors, E*Trade (ETFC +0.1%) rates just a Hold.
Thu, Aug. 14, 8:28 AM
Tue, Jul. 29, 10:42 AM
- It's not the first time Charlie Gasparino has floated this report, but E*Trade (ETFC +4.7%) and Schwab (SCHW +1.5%) have their tails in the air as the Fox News reporter says Goldman Sachs (GS +0.6%) is having internal discussions about whether it should swallow up one of the online brokers.
- Also on the move is Ameritrade (AMTD +1.4%).
- Previously: Goldman eyeing online brokers as trading business disappears?
Wed, Jul. 23, 5:56 PM| Comment!
Wed, Jul. 23, 4:43 PM
- Net income of $69M or $0.24 per share vs. $9 7M and $0.33 in Q1 and a loss of $54M or $0.19 one year ago. Revenue of $438M vs. $475M in Q2, and $440M a year ago.
- DARTs of 155K fell 22% from Q1 and gained 4% from a year ago.
- Net operating interest income of $270M up from $266M in Q1, and $243M a year ago.
- Commissions, fees, and service charges of $161M vs. $184M in Q1, and $156M a year ago.
- Operating expenses of $284M fell $6M from Q1 and $130M from a year ago, which included a goodwill impairment charge of $142M.
- The loan portfolio fell $300M from Q1 to $7.1B.
- ETFC -0.1% AH
- Source: Press release
Tue, Jul. 22, 5:35 PM
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Tue, Jul. 1, 3:29 PM
- Significant fixed-income cuts could be coming at Goldman Sachs (GS -0.3%) reports Charlie Gasparino, amid the continuing slowdown in business, with details maybe coming when the bank reports Q2 earnings on July 15.
- Both CEO Lloyd Blankfein and President Gary Cohn come from fixed-income and they've been reluctant to give up on the business, but the full effect of Dodd-Frank regulations are beginning to kick in, and a big change in the bank's business model could be necessary.
- During the internet boom, Goldman sniffed around E*Trade (ETFC +2.8%) and Schwb (SCHW +1.9%), and some bankers, according to Gasparino, say Goldman may need to take another look at purchasing an online brokerage name.
Mon, Jun. 30, 11:25 AM
- “The smaller firms are not as driven by turnover as they are by asset level values,” says Portales Partners analyst Charles Peabody, trying to explain why low volatility - hitting hard the revenues of the trading departments of the big banks - is helpful to online players like Schwab (SCHW -0.7%), E*Trade (ETFC +0.1%), and Ameritrade (AMTD +0.4%).
- "Volatility terrifies retail investors," says fund manager Chad Morganlander. It all adds up to earnings growth, with E*Trade's adjusted profit expected to grow 55% this year and Schwab's 24%. This compares to projected declines at the big banks.
Tue, Jun. 17, 12:41 PM
- "The market seems to have spoken," writes the team at MarketWatch blogging the hearing. "Translation: Not much appetite to dramatically change the rules."
- E*Trade (ETFC +6.5%), Schwab (SCHW +5.3%), Ameritade (AMTD +4.5%), Interactive Brokers (IBKR +2%).
- The stock exchange operators are performing as well: IntercontinentalExchange (ICE +0.9%), and Nasdaq OMX (NDAQ +1.1%).
Fri, Jun. 13, 8:17 AM
- ETFC Daily Average Revenue Trades (DARTs) of 147,661 in May fell 13.8% from April and 9.4% from a year ago.
- Press release
- Earlier this week, Ameritrade (AMTD) also reported a slowdown in trading.
- It wasn't long ago, the online brokerage names (SCHW too) were all reporting fast increases in client activity.
Tue, Jun. 10, 12:20 PM
- While single stock activity for Apple "lagged relevant averages" in its first day of trading post-split, notes Nomura's Steven Chubak, about 1.2M options contracts traded, a 270% increase to the 12-month daily average.
- Should that upsurge be sustained, says Chubak, it would add 2% to consensus 2015 earnings for TD Ameritrade (AMTD -1.1%), and 1% to E*Trade (ETFC -2.4%).
- These aren't game-changing numbers, Chubak admits, but the benefit is not yet reflected in Street estimates. "Any sustained increase in AAPL options activity is 'gravy' from our point of view, and should provide some additional revenue/earnings support."
- Previously: Trading activity slowdown at Ameritrade
Thu, May. 22, 3:51 PM
- “Despite talk of flagging investor confidence and increased scrutiny of market participants, data from retail brokers show that the retail crowd is more engaged than ever,” writes Credit Suisse's Ana Avramovic.
- Buying the dip in E*Trade (ETFC +1%) this week after a 21% decline between March 20 and May 15, Raymond James' Patrick O’Shaughnessy, says combined daily average revenue trades (DARTs) at E*Trade, Schwab (SCHW +1.3%), and Ameritrade (AMTD +0.7%) rose 24% Y/Y in Q1 to their highest level ever. E*Trade customers, he says, purchased a net $3.9B in securities in Q1, matching the strongest level since the company began reporting the metric five years ago.
Mon, May. 19, 2:06 PM
- Raymond James upgrades E Trade Financial (ETFC +0.1%) to Outperform and set $24PT.
- Baird cuts its rating on American Realty Capital Properties (ARCP -1.2%) from Outperform to Neutral and set $15PT.
- Bank of America downgrades Deutsche Bank (DB -1.6%) to Underperform.
- Credit Suisse downgrades Fulton Financial (FULT +2.8%) to $14 Market Perform and set $14PT.
- Genworth Financial is downgraded by Morgan Stanley (GNW -0.5%) to Underweight and set $18PT.
Sat, May. 17, 9:00 AM
- While TD Ameritrade (AMTD) has expanded its focus to cater to "mass affluent" investors, 46% of business still comes from trading - a higher percentage than rivals E*Trade (ETFC) or Schwab (SCHW) - and earnings are set to get a boost as retail investors pour back into the stock market.
- "When these cycles change ... it's really like a tide coming in," says Bernstein's Brad Hintz, who recently upgraded the stock. "With fixed costs already covered, margins pop. And the cycle lasts years, not months."
- Rising interest rates could also give the whole industry a boost, and Ameritrade - holding $96B in rate-sensitive assets for clients - could see EPS climb $0.36 in the first year after a 100 basis points rise in rates (fiscal 14 EPS is expected to be $1.44).
- Among the roadblocks is the boosted scrutiny over HFT following the release of the Michael Lewis book. Ameritrade doesn't disclose how much revenue it gets from payment for order flow, but analysts peg it about a mid-single digit percentage of revenue and mid-teens percentage of profits. Ameritrade argues the practice helps lower trading costs and improves execution fees, and analysts say the practice is unlikely to be completely eliminated. AMTD's stock is off about 12% since the book came out, about the same as E*Trade, but less than Schwab.
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