Wednesday, January 26, 2011

E-Trade Financial Corp. (NASDAQ:ETFC): Q4 Earnings Preview 2010

E-Trade Financial Corporation (NASDAQ: ETFC) is scheduled to release its fourth-quarter earnings after the closing bell on Wednesday, January 26, 2011. Analysts, on average, expect the company to report earnings of 4 cents per share on revenue of $322.94 million. In the year ago period, the company posted a loss of 40 cents per share on revenue of $231.04 million.

E-TRADE Financial Corporation, through its subsidiaries, provides online brokerage and related products and services primarily to individual retail investors under the E*TRADE Financial brand name worldwide.

In the preceding third quarter, the New York-based company's net profit was $8 million, or 3 cents a share, compared to a loss of $855 million, or $6.74 a share, in the same quarter last year. Revenue dropped to $489 million from $575 million. Analysts, on average, expected the company to report earnings of 3 cents per share on revenue of $317.43 million. Loan loss provisions and charge-offs dropped for another quarter, suggesting the company is recovering from mortgage market losses that have dragged down its trading operation.

The competitive position in the market for brokerage business depends on trading customers, predominantly active traders. As the long-term investing customer group is less developed compared with the trading customers, there is an opportunity for future growth as and when the long-term customers expand. Development of innovative online trading and long-term investing products and services, delivery of advanced customer service, creative and cost-effective marketing and sales, and expense discipline can be considered as key factors in executing E-TRADE’s strategy to profitably grow trading and investing business.Additionally, somewhat stabilization in the credit quality reflects that management can now focus more on the company’s core business. Brokerages have been working to motivate investors to return to trading, competing against itself for larger shares of the dwindling trading volumes by moving strongly toward lower commission schedules and commission free ETFs.

The company has seen a solid rebound in the size of its client base. E-Trade ended the month of November with around 2.7 million brokerage accounts, including gross new brokerage accounts of 30,355 and net new brokerage accounts of 5,182 during the month. Total accounts ended the month at around 4.2 million. In November, E-Trade's daily average revenue trades, or DARTs, totaled 158,770, a sequential increase of 9% and a year-over-year increase of 4%. Retail trading volumes have seen a pick up at E*Trade and its rivals TD Ameritrade (NASDAQ: AMTD) and Charles Schwab (NASDAQ: SCHW) in the last few months, however volumes have still been below last year, given the volatile markets.

Among other developments, E-Trade Financial recently confirmed that its three-year contract with Citadel Investment Group -- where the giant investment firm would provide order flow for a large chunk of E*Trade's retail trades -- expired as of December 31. E*Trade has been increasingly expanding its own market making business under E*Trade Capital Markets.

E-Trade has been a rumored takeover target for the past 2 years despite denials from other brokerage firms. While the company’s brokerage accounts would be attractive to another broker/dealer; E-Trade’s balance sheet still has few issues.

In terms of stock performance, E-Trade shares have lost nearly 11 percent over the past year.  

Full Disclosure: None.
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