E*Trade Reports Operating Profit, Stock Surges

Web brokerage E*Trade (NYSE: ET) said Wednesday that diversification efforts helped the company report an operating profit during the third quarter, despite a steep drop in online trading.

E*Trade chairman and chief executive officer Christos Cotsakos said the profit came despite the five-day market shutdown caused by the September 11th terrorist attacks and an overall slowdown in the economy.

“We’re pretty bullish on what’s happening with the mainstream investor,” Cotsakos said.

The operating profit — the fifth straight quarter in which E*Trade has reported positive earnings — excludes $227 million in restructuring charges and other one-time charges. When those special charges are factored in, E*Trade lost $259 million for the quarter, or 77 cents a share, which compares with a profit of $48 million, or 15 cents a share, in the year-ago period.

Nevertheless, the earnings news impressed analysts. Both UBS Warburg and Robertson Stephens raised their one-year price targets on E*Trade following the earnings release. In early trading Thursday, the stock was up US$1.08, or 16.2 percent, to $7.74.

Beating Expectations

Menlo Park, California-based E*Trade reported an operating profit of $9.3 million, or 3 cents per share, for the three months ending September 30th, ahead of both analyst estimates and the same period a year ago.

E*Trade said it maintained its operating profit despite plunging online trade volume. Average daily transactions declined 23 percent during the quarter, to 91,000. However, another 75,000 households joined E*Trade during the quarter.

E*Trade, which announced its earnings in New York City, also said it has $533 million in free cash.

“We exited the third quarter in a much-changed environment,” Cotsakos said. “The actions we took in the face of an economic slowdown should help us maintain our leadership position well into the future.”

More Bricks

Cotsakos also said that E*Trade opened six new E*Trade Zone stores in Target stores across the U.S. during the quarter, and will open 12 more by the end of this year and another 24 during 2002. Target has also agreed to host 1,000 E*Trade ATMs over the next 18 months.

“Our alliance with Target helps us build our physical presence efficiently,” Cotsakos said. “We can build 16 Target Zones for the cost of one full-service bank branch.”

Also boosting E*Trade was its August acquisition of Chicago-based market maker Dempsey & Company.

Much To Do

E*Trade also plans to revamp its Web offerings, with an eye toward getting existing customers to do more financial transactions.

To that end, E*Trade will roll out insurance and credit-card products in coming quarters and will beef up its news and information content offerings both online and through a radio broadcast program.

E*Trade also announced the introduction of E*Trade Pro, a service offering access to after-hours trading and streaming quotes for what it calls “hyper-active traders.”

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