NEW YORK – Online brokerage E-Trade Group Inc. on Monday posted a sharp increase in fourth-quarter profit, helped by cost cuts and gains from businesses other than stock trading, and said it expects 2002 earnings to exceed analysts' expectations.
Menlo Park, California-based E-Trade, which has $53 billion in customer assets, has benefited from big pushes into a wide range of financial services such as insurance, banking and mortgages.
"I think the profit driver has been the diversification model," E-Trade President Jerry Gramaglia said in a telephone interview. "As customers turn to us not just for investing, but for banking and lending as well, that's really the heart of our growth and diversification."
Despite lower trading volumes from a year-ago, E-Trade customers increased their stock trading over the last three months, pointing to possible relief from an extended slump that has dragged down commission revenues across the entire online brokerage industry.
Looking forward, E-Trade said it is comfortable with Wall Street expectations that it will earn 7 cents per share in the first quarter. More significantly, the company forecast 2002 earnings of 45 cents to 55 cents per share, excluding goodwill costs and other items.
That would be far ahead of analysts' current expectations of 38 cents per share, as measured by tracking firm Thomson Financial/First Call.
E-Trade said net income for the three months ended Dec. 31 rose to $21.6 million, or 6 cents per share, from $1.4 million, or nil per share, a year-ago.
Excluding charges and other items, E-Trade reported earnings of $24.7 million, or 7 cents per share. That was up from earnings of $5.8 million, or 2 cents per share, in the same period last year.
Analysts had been expecting results ranging from 1 cent to 7 cents per share, with a consensus of 4 cents per share, according to First Call.
Net revenues rose to $345 million from $334 million.
"I think what's happening is that investors are finally gaining some confidence in the company's earning ability in 2002," said Chase H&Q analyst Greg Smith. "There was always a little bit of skepticism about their earnings capability, and now people are starting to believe in the numbers as the company continues to deliver."
E-Trade said it opened about 108,000 new accounts in the fourth-quarter. That was down 56 percent from 243,000 last year, underscoring customers' reluctance to make financial moves in an uncertain economy.
The company said it processed an average of 110,000 trades per day in the period, down from 150,000 a year ago, although that was up 21 percent from three months earlier.
Fourth-quarter marketing expenditures dropped to $54 million from $97 million in the year-ago quarter, as E-Trade continued its advertising pullback.
E-Trade last month raised its earnings forecast for 2002, and said it was buying back 20 million shares, or 6 percent, of its stock. The new forecasts supersede the earlier projection.
Total assets at E-Trade Bank, the world's largest Internet bank, rose 19 percent to $13.5 billion.
E-Trade shares closed at $12.20 on the New York Stock Exchange Monday. The stock rose 39 percent last year, outperforming the Amex Broker-Dealer index of its peers, which fell 9 percent in that period.