What To Watch For In E-Trade’s Q2 Earnings

E*Trade Financial (NASDAQ:ETFC) fared well in Q1, and we expect this trend to continue when the company reports its second quarter earnings on July 20th. We believe that interest-earning assets will be the key driver of growth. The rate hikes in December 2016 and March 2017, driven by improvements in U.S. GDP and employment rates, led to nearly 18% year-to-date growth in E-Trade’s customer cash and deposits through May. We believe the growth momentum continued into June as well. Consequently, revenues from this stream, which contribute around 56% of the company’s overall revenues, are likely to increase significantly.

Trading commissions account for nearly a quarter of the company’s overall revenues. Although the trading volumes saw around 32% year-over-year growth, most of it was attributed to the acquisition of OptionsHouse. Our primary concern is that the company’s decision to slash its commission per trade from $9.99 to $6.95, following the price cut by rivals such as Ameritrade, Charles Schwab and Fidelity, will weigh on its results. We believe a part of the growth is also due to the improvement in U.S. macro conditions and increased volatility in the stock market. Since trading commissions generate only a small percentage of the company’s overall revenue, we do not expect the price cut to have a major impact on revenue and EPS growth in the near term.

See Our Complete Analysis For E-Trade Here

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