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

by Trefis Team
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ETFC
E-Trade
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E-Trade Financial (NASDAQ:ETFC) has performed impressively over the past couple of years, with over 28% and 57% annual growth in revenue and EPS, respectively. The company sustained its growth momentum in Q1, with over 28% growth in the top-line. We expect the brokerage’s 2018 revenue and EPS to grow by 20% and over 57%, respectively, and Q2 results will likely be along the same lines.

We expect that interest-earning assets will be the key driver of growth. The Fed’s interest rate hikes in 2017 led E-Trade’s interest earning assets to grow by 23% in the year.  The strong growth has continued in 2018 thus far, with over 25% growth in assets for April and May. Consequently, revenues from this segment, which contribute around 56% of the company’s overall revenues, are likely to increase significantly.

Our price estimate for E-Trade’s stock stands at $63, which is below the market price. We have also created an interactive dashboard which shows the forecast trends.  You can modify the key value drivers to see how they impact the company’s revenues and bottom line.

Trading commissions account for nearly a quarter of E-Trade’s overall revenues. Trading volumes saw around 20% year-over-year growth in April and May. A part of this is attributed to the acquisition of OptionsHouse. The company’s decision to slash its commission per trade in 2017 could weigh slightly on its results. 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.

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