E-Trade Earnings: Strong Revenue Growth Supported By Surge In Trading Volumes
E*Trade Financial (NASDAQ:ETFC) performed impressively in Q4 2016, reporting 16% growth in revenue and beating the market’s expectations as well as the prior quarters’ growth. The revenues from trading business, after remaining subdued for most of the year, grew nearly 23% in the fourth quarter. This was driven by increased volatility in the stock market resulting from the recently concluded U.S. presidential elections and improved macro factors such as GDP and employment rate. Additionally, the acquisition of OptionsHouse in July contributed significantly to the growth in the brokerage accounts and trading volumes. The revenues from interest earning assets continued to grow at a phenomenal pace for the quarter and full year, aided by the Fed’s rate hikes in in 2015 and 2016.
Trading Revenues Benefited From The U.S. Presidential Election And Improving Market Conditions
Trading commissions accounted for nearly 24% of the brokerage’s revenue in the fourth quarter. Due to competition from discount brokerages, in terms of pricing and subdued macro conditions during the first half of the year, the company saw around a 2% decline in its trading commissions during the first three quarters. However, the last quarter saw a significant recovery in the trading volumes, with a 23% increase in commissions for the fourth quarter, which we believe is due to increased trading in the wake of the election and improved economic conditions in the U.S.
- Coronavirus Recovery Watch: Capital Market Portfolio: 15% 5D Return vs. (-25%) YTD Return – [BlackRock, E*TRADE, Schwab & TD Ameritrade]
- Why Isn’t Charles Schwab’s Stock Benefiting From The Spike In Trading Volumes?
- E*TRADE: Will Lower Trading Commissions Cause Revenues To Be Short Of Consensus Estimates For FY 2019
- Is E*TRADE Stock Fairly Priced?
- Net Interest Revenue Will Form 40%, 60% or 80% Of E-Trade’s Stock In 2020?
- Changing Business Environment Likely To Be A Boon For Schwab and Ameritrade Despite Zero Commissions
With the company’s aim of focusing on growing its trading business and the continued volatility near term, we expect the growth momentum to spill into the year ahead.
High Yield And Fed’s Actions Supported Interest Earning Revenue’s Growth
Interest earning assets account for nearly 57% of E-Trade’s revenue. 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. These assets saw nearly 10% growth along with 10 bps increase in the yield, resulting in over 12% growth in the segment’s revenues for the year.
Although the growth momentum has declined in the last quarter, with the Fed’s indication of a series of rate hikes in the year ahead, we expect the momentum to pick up pace in the year ahead.
See Our Complete Analysis For E-Trade Here
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap