Online Brokers Eke Out Profits Amid Market Turmoil

Even as the major U.S. stock markets dipped to new lows, Ameritrade — the second largest online broker — said it squeezed out a quarterly profit of US$5.7 million. The company noted that order volume has plummeted as consumers have turned away from stock trading in large numbers, reducing revenue to $100 million from $112 million a year ago.

Ameritrade said it handled an average of 74,000 trades per day during the quarter ended in June, down from 109,000 per day in the same period a year ago and 89,000 per day in the previous quarter of 2002.

The company said cost-cutting efforts helped it stay in the black as it executed what analysts say is a risky strategy: focusing largely on stock trades as its competitors diversify into banking and other services.

“We are delivering on our commitment to produce profitability and positive cash flow, regardless of market conditions,” said Ameritrade CEO Joe Moglia. “We would expect this to continue, even if the markets remain challenging.”

Bright Side

Omaha, Nebraska-based Ameritrade said there was some operational good news: It signed up almost 70,000 new customers, increasing its total number of accounts to 1.9 million.

In April, Ameritrade won an auction that gave it the right to acquire Datek Online for $1.3 billion. The move briefly made Ameritrade the biggest online stock-trading outlet, but E*Trade regainedthat crown just days later when it bought Tradescape.

Hanging On

The combination of the Datek acquisition and the cost-cutting focus should help Ameritrade survive the trading slowdown, Morningstar.com analyst Rachel Barnard told the E-Commerce Times.

“The company has the ability to survive the current slowdown. And with the Datek merger coming together, it has the scale to be competitive,” Barnard said. “When markets pick up, it will be Ameritrade’s turn in the limelight.”

As long as trading volume remains low, however, profits for Ameritrade and other brokers will suffer as well, she added.

More Black Ink

Ameritrade’s earnings come a week after leading competitor E*Trade recorded its eighth straight profitable quarter, thanks largely to growth in its nontrading businesses.

Like Ameritrade, E*Trade saw sharply lower trading volume, handling about 108,000 daily transactions during the quarter, down 8 percent from a year ago.

Those results, E*Trade CEO Christos M. Cotsakos said at the time, “validate the inherent value of our diversified model that delivered in the most challenging market, business and economic conditions.”