Wednesday, July 20, 2011

E-Trade Financial Corporation (NASDAQ: ETFC): Q2 Earnings Preview 2011

E-Trade Financial Corporation (NASDAQ: ETFC) is scheduled to release its second-quarter earnings after the closing bell on Wednesday, July 20, 2011. Analysts, on average, expect the company to report earnings of 16 cents per share on revenue of $516.20 million. In the year ago period, the company reported earnings of 12 cents per share on revenue of $368.30 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 first quarter, the New York-based company’s net loss was  $24.12 million or 11 cents per share, compared to a loss of $67.15 million or 36 cents per share, in the same quarter last year. Total net revenues for the quarter remained flat with the same quarter last year at $536.70 million. Analysts, on average, expected the company to report earnings of 11 cents per share on revenue of $388.54 million.

E*Trade, a darling of the late 1990s tech boom, plunged into a multi-year string of losses when the bottom fell out of the U.S. mortgage market in 2007. The online retail broker’s shares have tumbled more than 90 percent since the start of 2007 as the company posted more than $3 billion of losses related to bad mortgages following the subprime crisis. The company has seen trading volume fall in recent months as turbulent markets leave investors skittish. E*Trade said last month that its daily average revenue trades for the month of May were 153,943, a 4% decrease from April and a 22% decline from the year-earlier period, which included the stock market's "flash crash." E*Trade added 28,895 brokerage accounts in May--a 32% drop from the prior month--to bring its total number of brokerage accounts to 2.8 million. In the same period last year, the company added 49,945 new brokerage accounts.

Recently, E*Trade Financial Corp's largest shareholder Citadel LLC urged the discount brokerage to put itself up for sale and take other steps to boost shareholder value. Citadel plans to submit a notice calling on shareholders to support a special meeting if E*Trade doesn’t do so on its own by July 22, according to the letter.Citadel owns about 9.8 percent of the New York-based company. E*Trade would be required to hold a special meeting once holders of 10 percent of its stock request it. At the special meeting, shareholders should vote on removing the staggered board provisions, removing directors Michael Parks and Donna Weaver and hiring an investment banking firm to review “strategic alternatives,” including a possible sale of the company.Citadel led a $2.5 billion cash infusion into the company in 2007, and engineered a 2009 share sale and debt swap designed to shore up capital and eliminate $1.7 billion of E*Trade debt. E*Trade obtained this help after suffering big losses from a disastrous foray into mortgages.

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.

Full Disclosure: None.
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