What To Watch For In E-Trade’s Q4 Earnings

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ETFC: E*TRADE Financial logo
ETFC
E*TRADE Financial

E*Trade Financial (NASDAQ:ETFC) has had a solid year so far. With three quarters reported, the brokerage’s revenue growth year to date has been nearly 20%, and we expect this trend to continue when the company reports its fourth quarter earnings on January 25. We believe this growth will be primarily driven by revenues from interest earning assets. This revenue stream has continued its strong performance throughout the year, in large part due to the rate hikes over recent months and the expectation of further interest rate hikes in the year ahead. However, the year has not been without challenges. There has been an industry-wide decline in trading commissions, and the company was forced to slash its commissions earlier in the year, owing to stiff competition from traditional and discount brokerages.  Still, the acquisition of OptionsHouse in the second half of 2016 offered some respite as it provided a significant boost to trading volumes.

Fed’s Guidance Continues To Boost Interest Earning Revenues

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Interest earning assets, which generate about 60% of the company’s revenues, displayed 21% growth, generating 24% growth in revenues through Q3. The Fed’s rate hikes in March and June contributed to this surge in assets. Additionally, the company has the highest yield on assets (around 2.8%) relative to its primary competitors, which has contributed to impressive growth in the revenue. The first two months of Q4 saw 4% growth in assets. We believe the growth momentum continued in December as well.

OptionsHouse Has Helped To Offset Losses From Commission Cuts

Despite a 33% gain in trading volumes, E-Trade saw a mere 4% gain in trading commissions through the third quarter. This is primarily due to the company’s decision to slash its commissions per trade in response to competitive pressure. The acquisition of OptionsHouse in mid-2016 continued to contribute to growth in brokerage accounts and derivative trading volumes, with over 31% of trading volumes attributed to derivatives. Strong growth in trading volumes in October and November (+15% y-o-y) should offer a significant boost to its top line in Q4.

See Our Complete Analysis For E-Trade Here

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