E*TRADE's stock was inching higher in trading Friday after the company reported first quarter results that beat Wall Street views and posted record daily average revenue trades (DARTs) as volatility in the stock market drew out more active traders. After the close of trading Thursday, April 19, the New York-based discount brokerage reported net income of $247 million, or diluted EPS of $0.88, and revenue of $708 million. Wall Street, according to Zacks Investment Research, had expected the brokerage to weigh in with EPS of $0.79 and revenue of $690 million.
During the quarter, E*TRADE Financial Corporation (ETFC) saw a 3% increase in net new brokerage accounts, adding 59,685, and net new brokerage assets of $5.3 billion. The online brokerage ended the first quarter with $392.8 billion in customer assets. DARTs of 309,000 marked a company record, as did derivative DARTs of 98,000. DARTs provide a way to measure the performance of a brokerage because they show investors' willingness to invest in stocks.
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"This was yet another quarter defined by meaningful progress in the business and excellent financial results, as we produced the strongest quarterly revenues and adjusted operating margin in company history," said Karl Roessner, chief executive officer, in prepared remarks. "Amid volatility return to the market, our customers fully engaged, setting records across trading, margin balances, net asset flows, and net buying, and our teams and systems ably managed the significant increase in activity." The CEO also noted that, during the first three months of the year, the company rolled out enhancements to its trading tools, beefed up its corporate services platform and remained focused on innovating.
During a conference call to discuss first quarter results with Wall Street, which was covered by Seeking Alpha, Roessner noted that, while customers "truly leaned into the market, more than doubling typical Q1 net buying and driving margin receivables to another all-time high," the brokerage is seeing a moderation in trades in April. According to the executive, April is tracking down 13% so far from the levels seen in March. "If history repeats itself, when markets go down or volatility starts to come out of the marketplace, you would see a rise in some of the cash balances, and in this environment, we'd be extremely pleased with that," said the executive. With interest rates rising, brokerages make money off the cash sitting in accounts.
As for the potential for E*TRADE to be sold, Roessner said that the company is focused on being a leading brokerage for traders and that the board is "very engaged" in terms of helping E*TRADE meet its growth goals. The board, along with Roessner and a third party, will look at the value of the company and where it stands and make a determination about the best path forward. The CEO said that the recommendation will come in October when the company reports third quarter results.
"The board is truly one of the sort of fully informed boards, and they've been doing this for a very long period of time in having one of the big banks on the Street come in and really look at intrinsic value and take a look at how the company is set up, what our growth model is, how it plays out and what the real value is of the growth plans that management has put in place," said Roessner. "They will use that information this year in connection with the results of the growth goals, the value that we've created for shareholders over the past 18 months and then at that point 24 months where we are in the cycle, and they'll look at that in its entirety as they form the answer and the results that [we] will present on the third quarter call."