E-Trade’s Quarterly Revenues To Be Driven By Improvement In Trading Volumes And Rate Hike
E*Trade Financial (NASDAQ:ETFC) will announce its Q4 2016 results on January 26th. Considering a significant improvement across all its key metrics in October and November, we expect the growth momentum that the company saw in the first three quarters to be reflected in Q4 results as well. E*Trade’s revenues grew by about 13% in the first three quarters of 2016, excluding the $370 million loss in Q3 2015 related to the termination of wholesale funding obligations, and the consensus estimates peg fourth-quarter growth in the similar range. The year 2016 was full of challenges for brokerages, with industry wide-decline in trading volumes due to unfavorable macro conditions in the U.S. and stiff competition from traditional and discount brokerages. However, a sudden surge in trading volumes in the fourth quarter is likely to have positive bearing on the company’s top-line. Additionally, the acquisition of OptionsHouse in July is likely to contribute significantly to the growth in the brokerage accounts and trading volumes. Additionally, we expect the recent interest rate hike by the Fed to have a positive impact on the brokerage’s interest earning assets.
Trading Revenues Will Benefit From The U.S. Presidential Election And Improving Market Conditions
Trading commissions account for nearly a quarter of the company’s overall revenues. Although the first three quarters saw a marginal decline in revenue from this segment in comparison to the prior year, October and November saw a surge in trading volumes by 17% and 40%, respectively. We believe the growth momentum spilled over in December because of highly volatile market conditions resulting from the presidential election results and improvement in the U.S. economy.
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Fed’s Guidance Continues To Boost Interest Earning Revenues
Interest earning assets, which generate about 60% of the company’s revenues, displayed 5% growth, generating 15% growth in revenues in the September quarter. The Fed’s rate hike by 25 basis points contributed to this surge in the assets. Additionally, the company has the highest yield on the assets (at 2.7% in comparison to its competitors), which has contributed to an impressive growth in the revenue. We believe the growth momentum spilled over in December quarter as well, due to the 25 basis point rate hike announcement.
The company’s focus on increasing its customer base, mainly by extensive marketing of its products and services, is likely to have enhance the growth of both customer accounts and assets. Its digital advisory service, E-Trade’s Adaptive Portfolio, is likely to have boosted the company’s assets under management.
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