E*Trade Experiences Mixed Trade Volumes in October

51.75
Trefis
ETFC: E*TRADE Financial logo
ETFC
E*TRADE Financial

E*Trade (NASDAQ:ETFC) witnessed mixed October trade volumes, which was consistent with the industry trend for the month. E*Trade’s daily average revenue trades (DARTs) stood at 145,000 in October, down by 18% from the comparable prior year period. [1] However, trade volumes were up by 4% sequentially, while the annual decline in volumes can be partially attributed to tough year on year comparisons. Below we take a look at the volumes, trends and outlook for the company.

We have a $24 price estimate for E*Trade’s stock, which is almost 20% lower than the current market price. E*Trade’s stock price has fluctuated between $22 and $31 this year.

Relevant Articles
  1. Coronavirus Recovery Watch: Capital Market Portfolio: 15% 5D Return vs. (-25%) YTD Return – [BlackRock, E*TRADE, Schwab & TD Ameritrade]
  2. Why Isn’t Charles Schwab’s Stock Benefiting From The Spike In Trading Volumes?
  3. E*TRADE: Will Lower Trading Commissions Cause Revenues To Be Short Of Consensus Estimates For FY 2019
  4. Is E*TRADE Stock Fairly Priced?
  5. Net Interest Revenue Will Form 40%, 60% or 80% Of E-Trade’s Stock In 2020?
  6. Changing Business Environment Likely To Be A Boon For Schwab and Ameritrade Despite Zero Commissions

See our full analysis for E*Trade Financial

Depressed Trade Volumes in October

While August was a good month for E*Trade, with the company adding 14,000 net new accounts through the month, the brokerage managed to add only 44 and 363 net new brokerage accounts in September and October, respectively. The net new brokerage accounts were impacted by the shutdown of the company’s global trading platform in Q2. [2] Moreover, the company’s decision to wind down its operations in Hong Kong and Singapore could affect this metric in the coming quarters. [3] As a result, the total brokerage accounts at E*Trade have stagnated at just over 3.2 million. We currently forecast E*Trade to end the year at 3.26 million brokerage accounts.

The company experienced muted trading activity in October, in line with the trend observed throughout the industry. DARTs for the month of October stood at under 145,000, which was about 18% lower on a y-o-y basis. [1] With 3.26 million accounts at the brokerage, about 145,000 DARTs roughly translate to an average of just over 11.1 annualized trades per account. We currently forecast E*Trade’s average annualized trades per account to stand at 12.5 for 2015, and subsequently rise to over 17 through the end of our forecast period.

Marginal Growth In Interest Earning Assets

E*Trade earns interest income by holding customer cash and deposits in addition to credit balances, which include margin, real estate and consumer loans. E*Trade’s average client balances were $41.2 billion for the nine month period ended in September, which was slightly lower than prior year periods. [4] However, total customer cash and deposits were up both sequentially and annually to $46.3 billion in October. Total cash and deposits are could continue to rise through the end of the year due to the expectation that interest rates might pick up from December. We forecast interest earning assets for the full year to be about $41.9 billion.

Interest rates are a major contributor to the brokerage’s revenue. With Fed’s policy of near zero rates, the brokerage suffered through flat average yield levels, causing net interest revenues to remain subdued. We forecast the year 2015 to end at similar yield levels as 2014, rising early next year to over 2.9% as the ambiguity regarding Fed’s decision abates.

Margins Could Suffer

The brokerage has witnessed low trading activity in 2015 thus far, leading to a 5% decline in trading commission revenues through the nine month period ended September. Moreover, stagnant yield levels resulted in no meaningful rise in E*Trade’s interest revenues. Low revenues from both revenue streams combined translated in compressed margins for the company. Its adjusted EBITDA margin fell by about 5 percentage points to 38.6% in Q1’15 and over 3 percentage points to 38.9% in Q2. The trend continued in Q3, with cash operating expenses rising by over 5% y-o-y to $272 million. As a result, its adjusted EBITDA margin stood at 38.6% for the quarter, about 3 percentage points lower than the prior year period. With a sustained period of low trade volumes for the company, we forecast E*Trade’s adjusted EBITDA margin to stand at 38.6% for the full year, down from about 40% last year.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. E*Trade Monthly Metrics For October, E*Trade Investor Relations, November 2015 [] []
  2. E*Trade Financial Corporation Reports Monthly Activity for July 2015, Market Watch, August 2015 []
  3. Earnings Call Transcript for Q3 2015, E*Trade Investor Relations, October 2015 []
  4. E*Trade Quarter Three Earnings Report, E*Trade Investor Relations, September 2015 []