Key Takeaways From E-Trade’s Q1 Earnings

by Trefis Team
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Following up a decent performance in 2017, E*Trade Financial (NASDAQ:ETFC) sustained its growth trend in Q1 with quarterly revenue of $708 million, an increase of 28% over the same period last year. In line with our expectations, interest earning assets continued to be the primary growth driver, aided by the Fed’s interest rate hikes and a strong net interest yield. Despite the price cut in equity trading commissions, trading commissions were 8% higher than Q1 2017, though this is largely due to the acquisition of OptionsHouse boosting trading volumes. Operating expenses grew nearly 16% in comparison to the prior year, due to higher advertising, compensation and infrastructure spending to cater to the expanding customer base, and we expect them to remain around same levels this year. Despite that, the company’s adjusted operating margin came in at 44%, 6 percentage points above the prior year quarter. However, the costs incurred due to the OptionsHouse acquisition and declines in trading commissions will likely lead to a dip in operating margins through this year.

We have a price estimate for E-Trade’s stock of about $53, which is slightly below the market price. We have summarized E-Trade’s Q1 earnings from the announcement in our interactive dashboard for the company, the key parts of which are captured in the charts below.

Interest Earning Revenues Grew Due to Fed’s Actions

Interest earning assets account for nearly 65% of E-Trade’s revenue. Additionally, the company has the highest yield on these assets (at 2.97%) among its peers, which has contributed to impressive growth in revenues. These assets saw nearly 23% growth along with a 34 basis point increase in yield, resulting in nearly 40% growth in the segment’s revenues for the quarter. With our interactive dashboard, you can modify the asset base and yield to see the change on revenue.

Growth In Trading Volumes Reduced Losses Due To Commission Cut  

Transaction-based revenues account for 20% of E-Trade’s overall revenue. The quarter saw an 8% growth in trading commissions despite to the company’s decision to slash its commissions by over 35%. The 49% growth in trading volumes managed to more than offset some of the losses. The improvement in U.S. macro conditions led to significant surge in trading volumes.

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