Interest Income Gains To Drive E-Trade’s Q2 Results

E-Trade (NASDAQ: ETFC) is expected to release its second quarter results on July 18 and Trefis expects interest income to lift E-Trade’s top line despite an overall decline in market volatility over the last three months. In the Trefis interactive dashboard, What To Expect From E-Trade’s Q2 Results? you can observe recent trends in E-Trade’s operational metrics and compare it with the quarterly trends in revenues and expenses. Additionally, you can find more of our Financial Services data here.

A Quick Look at E-Trade’s Revenue Sources

E-Trade reported $2.8 billion in Total Revenues for full-year 2018. This included four revenue streams:

• Net Interest Revenue: $1.8 billion in FY2018 (64% of Total Revenues). It is largely earned on investment securities and margin receivables
• Fees and Service Charges: $431 billion in FY2018 (15% of Total Revenues). The company charges for order flow, sweep deposits in money market accounts, advisor management, mutual funds, and foreign exchange services.
• Trading Commissions: $498 million in FY2018 (17% of Total Revenues). A trading commission is charged for executing trades in stocks, bonds, options, futures, etc.
• Other Revenues: $98 million in FY2018 (3% of Total Revenues). It includes income from stock plan administration software and services to corporate clients.

A brief look at the previous quarter performance

• In Q1, E-Trade reported $755 million of net revenues, growing by 3% sequentially.
• Revenue increases were primarily driven by net interest income, which witnessed a 2% sequential increase.
• An 11% drop in margin receivables was offset by a 4% growth in investment securities during the first quarter.

 What to expect from the second quarter results?

• Per the operational data released by E-Trade for April and May, margin receivables and average DARTs have been fairly stable.
• This is opposed to other brokerages where average DARTs for May fell by nearly 10% as compared to January.
• Considering net interest income as a driver, we expect E-Trade to report net revenues that are largely identical to the figure for the previous quarter.

We expect E-Trade to report an EPS figure of $4.16 for FY 2019. This EPS figure coupled with our P/E multiple of 12x works out to a price estimate of $49 for E-Trade’s stock – a figure 10% ahead of the current market price.

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