E*Trade Soars After Beating Street

Shares of E*Trade (Nasdaq: EGRP) surged 27 percent Thursday after the company surprised Wall Street by exceeding break-even Q4 expectations.

The online investment service posted earnings per share of 2 cents, powering the stock up 3 1/16 to 14 1/2.

Despite this year’s sagging Nasdaq composite index, E*Trade’s revenue for the quarter rose 76 percent to $340 million, up from $193 million during the same quarter in 1999.

Annualized revenue per customer for fiscal year 2000 was $547, with customer assets growing by 114 percent. E*Trade added 337,000 new accounts during the quarter and doubled its customer base this year to over 3.3 million.

Broad Base Celebrated

“Twelve months ago we were one product, one channel and one segment,” E*Trade chairman of the board and chief executive officer Christos M. Cotsakos said. “E*Trade is no longer just an online brokerage company. In a very active 12 months, our associates have all taken part in a radical transformation of E*Trade.”

E*Trade expects next year’s first quarter EPS estimates to remain in the range of breakeven to 2 cents.

Len Purkis, E*Trade’s chief financial officer, attributed the company’s success to the diversity of its business model and the emphasis on E*Trade’s banking services.

“The execution of our revenue diversification strategy, driven by the acquisition of the bank, has been key to our model withstanding the last three quarters of market volatility and to recording profitable results,” Purkis said. “We’ve put a very diversified model in place to help weather the impact of any storm in the equity market.”

Forward Progress

E*Trade’s banking services now represent 15 percent of its total net revenues. The bank nearly tripled both its account and deposit base from a year ago, adding 65,500 net new accounts in the quarter.

During the fourth quarter, E*Trade’s bank surpassed $4.6 billion in deposits and $9 billion in total assets, almost a 100 percent growth increase over the past year.

“The cross-selling of banking to our brokerage customers is an incredibly valuable proposition for E*Trade,” Cotsakos said, “as we double our annual revenue and assets per customer while spending a third of what we spend in the marketplace for a new account.”

Growth Expected To Continue

In addition to adding banking services such as auto loans, mortgages and credit card origination in the future, E*Trade plans to continue diversifying its offerings to businesses.

E*Trade’s new Business Solutions group recently signed several Fortune 500 companies to offer their employees packaged E*Trade services over company intranets.

Other future revenue avenues include offering tax-deferred college savings plans, securities baskets (which work much like mutual funds), and the formation of E-Advisor, a new service offering electronic and in-person advisory services.

E*Trade also plans to offer integrated banking and brokerage wireless services in the near future.