As competition has given online brokerage E*Trade (EGRP) a run for its money, Wall Street has changed its expectations of an upside surprise when the online brokerage reports its second-quarter results next month.
E*Trade shares tumbled 13 percent on Friday after an analyst lowered his earnings estimate on the stock for the quarter. But today the stock has largely rebounded, climbing as high as 23-1/4, up from the previous day's close of 21-3/8.
Deutsche Morgan Grenfell lowered its earnings estimate on E*Trade shares to 16 cents from 17 cents, based on expectations that the company's revenue will be lower than previously estimated because customer account growth may be down by 5,000 for the quarter, said Wayne Segal, a research associate.
E*Trade had roughly 325,000 accounts at the end of December, up 188 percent from year-ago figures and a 44 percent increase compared with the previous quarter.
"We mentioned in our report how [competitor] Ameritrade has spent over $30 million in advertising lately and there is a general increase in competition," he said.
Other competitors, like discount broker Charles Schwab, have ramped up value-add services in their efforts to compete, while companies like Suretrade and Ameritrade are offering to execute trades at less than $10 per transaction. E*Trade next month also plans to roll out new services, such as research from brick-and-mortar brokerages and information on initial public offerings.
Analysts with Credit Suisse First Boston noted that E*Trade's quarter-to-quarter customer account growth is likely to slow during calendar 1998, to 11 percent at the end of the year from 17 percent at the start. They also noted that the cost to acquire new customers is likely to rise during this time, to $225 per customer from $200, and attributed the likely jump to a slowdown in new account growth.
Nonetheless, First Boston and DMG still remain bullish on the company, keeping their "buy" recommendations.
"I think 1998 will not be a year that disappoints people, but everyone will have to wait for the [second quarter] numbers to be released," said Kate Connelly, an E*Trade spokeswoman.
E*Trade will announce its quarterly results April 7.
"Traditionally, E*Trade has provided an upside surprise when they announce their earnings, but this quarter will be more in line with expectations," Segal said.
Analysts are expecting the company to report earnings of 15 cents a share, according to First Call.
In the backdrop, Christos Cotsakos, E*Trade's chief executive and president, who had not been an active insider seller for more than a year, recently sold 9 percent of his holdings, or 150,000 shares. The shares were trading in the 27 range when he initially filed to sell, back in mid-February.
Kim Shepherd, an E*Trade spokeswoman, said Cotsakos decided to sell his shares for tax-planning purposes. She also noted that the company has certain times of the year, or windows, during which insiders are permitted to sell their shares.
The company's stock, which hit the 48 range in early October, steadily fell through mid-December to around 18 a share, and largely has remained in the low to mid-20s since.