Mitch Caplan, CEO of online brokerage and bank E*Trade (ticker: ET), spoke at the Sandler O'Neil & Partners Financial Services Conference on June 8th. Here are his comments about the sweet spot for the online finance business and price pressure in the online brokerage business:
...we believe that the most interesting and compelling sweet spot is the asset gatherer… this sweet spot of 46 million households. They fundamentally have between $50,000 and $500,000 in assets. As we look at our business model and the opportunity, the most compelling and the biggest part of that is 50 to 250 …those customers have been singularly abandoned by the large brick and mortar providers of service for them. So, whether it is in a trading platform and a trading product or an asset product, a credit product, a cash product, whatever it is, they have been moved … Smith Barney, Merrill Lynch and others… out of the core franchise and off to a call center somewhere, because they really can't afford to connect to them in a way in which we can because of the technology and the lower-cost infrastructure on our platform.
…2000 to '04 there's an 11% average annual decline in commission rates, while at the same time you saw a 9% increase in revenue... But… you've seen for us a 34% average annual increase in segment income during that same period.
(Quotes are from the CCBN StreetEvents transcript.)
E*Trade is right that the sweet spot for the online brokerages is the client with $50,000 to $250,000 in assets. But what's interesting is that online brokerages, when combined with exchange-traded funds, offer a compelling value proposition for even wealthier investors too.
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