Net Interest Revenue Will Form 40%, 60% or 80% Of E-Trade’s Stock In 2020?

by Trefis Team
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E-Trade (NASDAQ: ETFC) is a financial services company that provides online brokerage, and related products and services, primarily to individual retail investors. In 2018, the company handled 5.2 million brokerage accounts and held $20 billion in custodial assets. Trefis highlights trends in E-Trade’s Revenues over the years along with our forecast for the next 2 years in an interactive dashboard. After slashing trading commissions to zero in October, we believe that E-Trade’s Net Interest Revenue is likely to contribute almost 80% of the company’s top-line in 2020 – up from 64% of revenues in 2018.

 

A Quick Look at E-Trade’s Revenues

E-Trade reported $2.8 billion in Net Revenues for full-year 2018. This included four revenue streams:

  • Net Interest Revenue: $1.8 billion in FY2018 (64% of Net Revenues). It is largely earned on investment securities and margin receivables
  • Fees and Service Charges: $431 billion in FY2018 (15% of Net Revenues). The company charges for order flow, sweep deposits in money market accounts, advisor management, mutual funds, and foreign exchange services.
  • Trading Commissions: $498 million in FY2018 (17% of Net Revenues). A trading commission is charged for executing trades in stocks, bonds, options, futures, etc. This
  • Other Revenues: $98 million in FY2018 (3% of Net Revenues). It includes income from stock plan administration software and services to corporate clients.

 

E-Trade’s Revenues have grown at a CAGR of 22% from $1.9 billion in 2016 to $2.8 billion in 2018, but are expected to shrink to $2.4 billion in 2020

  • E-Trade has added $932 million to its Revenues over the last two years.
  • Revenue growth was primarily driven by the Net Interest Revenue, supported by increasing short-term interest rates.
  • In 2020, Net Interest Revenue is likely to decline due to the low short-term interest rate environment, even though we expect the company’s interest-earning assets continue to grow.
  • Though Fee and Service Charges are expected to follow the growth trajectory, the contribution of asset management fees is expected to be low due to E-Trade’s small custodial asset base of $20 billion (in comparison, Schwab’s has roughly $900 billion in custody assets).
  • Moreover, we expect E-Trade to face additional top-line pressure from the recently announced Schwab-Ameritrade merger.

Additional details about how revenues for each of E-Trade’s segments has trended over the years is available in our interactive dashboard.

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