E*TRADE Financial (ETFC) November DARTs Descend 7% Q/Q

Online brokerage firm, E*TRADE Financial Corporation (ETFC) reported a jump in its Daily Average Revenue Trades (DARTs) for Nov 2014. According to the monthly market activity report for November, E*TRADE’s DARTs were 163,045, down 7% from the prior month while it remained unchanged on a year-over-year basis.

Broker performance is generally measured through DARTs that represent the number of trades from which brokers can expect commissions or fees. The fall in DARTs largely reflects investors’ reluctance in investing in equity markets.

At the end of the month under review, E*TRADE’s total number of accounts came in at approximately 4.8 million, of which about 3.1 million are brokerage accounts, 1.3 million are stock plan accounts and 0.4 million are banking accounts.

For the reported month, E*TRADE’s total brokerage accounts included 26,805 gross new brokerage accounts. Moreover, E*TRADE’s net new brokerage assets were $1 billion, increasing from $0.8 billion in the prior month. Total brokerage accounts reflect the company’s ability to attract and retain customers who trade and invest.

As of November-end, E*TRADE’s customer security holdings were $208.8 billion, up 2.5% from the prior month. The company’s brokerage-related cash increased $0.8 billion to $40.8 billion, with customers being the net buyers of about $0.2 billion in securities. Moreover, bank-related cash and deposits for the company stood at $5.8 billion, up $0.1 billion compared with the prior month.

Peer Performance

Earlier this week, another brokerage firm, TD Ameritrade Holding Corporation (AMTD) came out with its average client trades per day of 428,000 in its activity report for November. The reported figure declined 13% from the prior month while it increased 3% compared with the prior-year period.

Our Viewpoint

Amid the challenging economy, new brokerage accounts will be beneficial for the company. We remain concerned about the sluggish macroeconomic environment, which is leading to lower trading activities with DARTs declining. Moreover, fluctuating interest rates are expected to continuously impact the company’s financials in the near term.

However, E*TRADE’s initiatives to reduce balance sheet risk appear to be promising, although they will put near-term pressure on the net interest margin. The company’s strong capital position is impressive and will likely aid it to navigate through the current cycle.

E*TRADE currently carries a Zacks Rank #3 (Hold). Some better performing stocks in the same industry include Piper Jaffray Companies (PJC) and FXCM Inc. (FXCM), both with a Zacks Rank #1 (Strong Buy).

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