E-Trade Shares Jump Higher
E-Trade looks likely to beef up its marketing costs this quarter by as much as 50 percent, one analyst said, as it increases spending to get new accounts.
The increase in spending to an estimated $90 million from $60 million in its fiscal second quarter could lead to a loss for the online broker, which Tuesday reported a small profit because of a one-time gain and saw its shares soar.
"It looks like they'll be more aggressive than even this past quarter in their marketing," said Scott Appleby, an analyst at ABN Amro, who said E-Trade could spend as much as $90 million.. "In this marketplace, it's a strategy I agree with: keep spending money until you gain accounts."
Appleby thinks the company may post a 28-cent to 30-cent loss for its fiscal third quarter ending in June, versus a consensus estimate of a loss of 3 cents, according to First Call. Company officials were not immediately available for comment.
E-Trade stock spiked 16 11/16 on Tuesday to 90 1/12 after the company reported profits of $5.8 million or 5 cents a share on a one-time gain.
The share price rise comes after a steep selloff in all the e-brokers on Monday. Rivals Charles Schwab and Ameritrade were also higher. The two also beat analysts estimates for the March quarter last week.
E-Trade had braced investors for the pro forma loss on marketing and technology upgrade costs. On Tuesday, the company said it "anticipates incurring additional operating losses into the future as it continues with its brand-building and account acquisition strategy."
E-Trade spent $41 million on selling and marketing in the December quarter. Its cost per account slipped to "just over" $250 per account from more than $300 per account last quarter, E-Trade said.
Excluding that net $20 million gain on the sale of part of its investment in market maker Knight/Trimark, the online broker posted a loss from operations of $14.3 million or 12 cents a share. Analysts surveyed by First Call had expected a 17-cent per share loss vs. a 5-cent gain a year ago.
Average daily trades, a key measurement of growth for online brokers, rose 63 percent over the December quarter to 70,000.
E-Trade said revenue grew 44 percent over the December quarter to $126.7 million and that 233,000 new active accounts were added, up 77 percent over the previous quarter.
E-Trade added more new accounts in the March quarter than all of last year, excluding accounts gained in acquisitions, the company said.
Assets held in customer accounts totaled $21.1 billion at the end of the quarter, up 109 percent from the year-ago period.
Written By Emily Church, CBS MarketWatch