Knight/Trimark: Lower trading volumes hurt 3Q

Knight/Trimark Group, Inc. (Nasdaq: NITE), a company which processes online trades, warned Monday it expects to miss the Street's expectations for its third quarter earnings due to lower sequential trading volume. The company said earnings will be about 17 to 19 cents a share, well below First Call's prediction of 30 cents a share.

Shares closed Friday at 29 63/64, well below their 52-week high of 81 5/8 in May. Shares were down was at 27 on the Instinet electronic broker system. Other online brokers could also be affected by the Knight/Trimark profit warning.

Knight/Trimark said trading slowed from the second quarter.

"The marketplace underwent a fundamental shift in the third quarter of 1999 compared to the first six months of the year. During the past quarter, there were decreased trading volumes and volatility as a result of lower retail volume and greater than expected seasonality in the marketplace," said Kenneth D. Pasternak, CEO, in a statement. "This fundamental shift in the marketplace, coupled with changes made in our execution methodologies to provide enhanced price improvement to our customers, resulted in decreased volume and profitability metrics from the second quarter of 1999."

Knight/Trimark emphasized that revenue, number of trades executed, shares traded and pre-tax profits for the third quarter 1999 showed strong year-over-year gains. Revenue is expected to be about $138 million, a 49 percent increase over revenues of $92.4 million for the same period in 1998. Trades executed during the third quarter of 1999 amounted to 20.4 million, a 95 percent increase over the number executed in the third quarter of 1998. In addition, the company traded approximately 17.8 billion shares in the third quarter of 1999, an 88 percent increase over the number of shares traded in the third quarter of 1998.

Knight/Trimark, which will report earnings Wednesday, reported earnings of 13 cents a share in the third quarter a year ago.

The miss doesn't come as much of a surprise. BancBoston Robertson Stephens analyst Scott Appleby recently lowered his estimates on the stock, saying that "the low trading volumes and volatility seen this quarter have influenced the company worse than anticipated."

At an Internet World forum last week, online broker executives said they were trying to lessen their dependence on trading volume. DLJDirect (NYSE: DIR) president Glenn Tongue said the broker's strategy is to acquire assets. "Our strategy is to acquire assets and create a high-end brand," he said. "The more assets that are with us the stickier the customer."

Tongue said DLJDirect already has some of the highest average assets per account in the industry. DLJDirect is also offering mortgage and banking products.