E*TRADE Financial (NASDAQ:ETFC) posted revenues for the quarter that were in line with the figures for the Q4 2011 quarter showing a substantial increase in gains on loans and securities offset by an 8% decline in commission based revenues. Daily average revenue trades or DARTs slipped 1% from the prior quarter and were down 9% from the 2011 figures as market volatility and investor confidence remained low. Its earnings fell by $186 million which was impacted by charges of nearly $300 million due to the early retirement of debt.
Our price estimate for E*TRADE is $8, 10% below the current market price for the stock.
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- Trade Volumes, Limited Growth In Asset Base To Weigh On E*Trade’s Earnings
- Trade Volumes Remain Muted in November For E*Trade Financial
- E*Trade Experiences Mixed Trade Volumes in October
- E*Trade Q3 Results: Limited Revenue Capture From Trades, Low Yields Hinder Growth
- E*Trade Earnings Preview: Trade Volumes Rise In Q3 After A Slow First Half
Newly appointed Chief Executive Officer (CEO) Paul T. Idzik will look to revive trading activity in the coming months after a tepid performance through 2012. DARTs for the fiscal year were 12% below the 2011 levels. The company has seen signs of a recovery in January as month-to-date DARTs are 17% above December levels. E*TRADE earns about 20% of its net revenues through commissions on trade, charging $11 per trade. We expect a gradual recovery in trading volumes in the coming years as macro-economic conditions improve.
Despite the decline in trading activity, E*TRADE was able to attract more brokerage clients. The company reported 120,000 net new brokerage accounts added in 2012, well above the figure of 99,000 accounts added in 2011. The average number of trades per account dropped from 14.2 in 2011 to 11.9, and we expect this figure to improve in the coming years.
Interest Income Affected By Interest Rates
Interest income is quite important for E*TRADE, accounting for 60% of the company’s revenue. Low interest rates have had an impact on the brokerage’s ability to generate returns on cash deposits. Despite an intake of $2.3 billion net new brokerage assets in the last quarter, the interest income during the three months was down 10% from the prior year due to yield compression. We expect the yield to remain low in the coming years.