E*TRADE's May DARTs Slump - Analyst Blog

Online brokerage firm E*TRADE Financial Corporation ETFC reported a fall in its Daily Average Revenue Trades (DARTs) for May 2014. E*TRADE reported May DARTs of 147,661, down 13.8% from Apr 2014 and 9.4% year over year.

Broker performance is generally measured through DARTs, representing the number of trades from which brokers can expect commissions or fees.

At May end, E*TRADE's total number of accounts came in at approximately 4.7 million – consisting of 3.1 million brokerage accounts, 1.2 million stock plan accounts and 0.4 million banking accounts.

For the reported month, E*TRADE's total brokerage accounts included 29,571 gross new brokerage accounts. Moreover, E*TRADE's net new brokerage assets were $1.2 billion, increasing from negative $0.7 billion in the prior month. Total brokerage accounts reflect the company's ability to attract and retain customers who trade and invest.

During the month of May, E*TRADE's customer security holdings were $191.8 billion, up 2.1% from the prior month. The company's brokerage-related cash increased by $1.1 billion to $39.9 billion, with customers being the net sellers of about $0.5 billion securities. However, bank-related cash and deposits for the company remained unchanged at $6.1 billion.

Our Viewpoint

Amid the challenging economy, decrease in DARTs and gross brokerage accounts is a matter of concern for E*TRADE. However, the company's initiatives to reduce balance sheet risk appear to be promising, although they will put near-term pressure on net interest margin. Moreover, the company's decision to emphasize more on its core businesses is a good sign.

We remain concerned about the sluggish macroeconomic environment, which might lead to lower trading activities. Also, mounting expenses and fluctuating interest rates are expected to impact the company's financials in the near term.

Earlier, in its Activity Report for May, Interactive Brokers Group, Inc.'s IBKR Electronic Brokerage segment charted a 2.0% rise in daily average revenues trades from May 2013. This figure was, however, 10.0% down from its prior-month figure. Interactive Brokers currently carries a Zacks Rank #2 (Buy).

E*TRADE holds a Zacks Rank #2 (Buy). Better-ranked investment brokers include Arlington Asset Investment Corp. AI and Piper Jaffray Companies PJC. Both of these sport a Zacks Rank #1 (Strong Buy).

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