E*Trade Group Inc
E*TRADE GROUP INC.
E*Trade Group Inc. provides a range of online personal and institutional financial services through its wholly-owned subsidiaries. Access to the company's offerings can be found at its primary Web site, which offers links to investment options, financial services, discussion groups, live events, and more. The company's principal subsidiaries include E*Trade Securities Inc., which provides online retail brokerage services to individual investors. Investment options offered through E*Trade Securities Inc. include stocks, options, initial public offerings (IPOs), mutual funds, bonds, and extended hours trading.
E*Trade Group also provides online banking services through E*Trade Bank and owns E*Trade Access, a national network of more than 9,600 automated teller machines (ATMs) located in 48 states and three countries. E*Trade Bank launched in April 2000 following the acquisition of Telebanc Financial Corp. and its Internet banking subsidiary, Telebank, which was the largest Internet bank. Through its Web site www.etradebank.com, E*Trade Bank allows customers to open accounts, view consolidated balance statements, transfer funds between accounts, pay bills, and compare rates. While nearly 90 percent of E*Trade Bank's customer contact comes over the Internet, the company maintains customer service call centers that are open 24 hours a day. E*Trade Access was formed in May 2000 following the acquisition of Card Capture Services Inc. E*Trade Access is in the process of developing financial services kiosks as a complement to its ATM network.
Internationally, E*Trade Group offers online retail brokerage services, as well as financial services to institutional investors. The company operates nine Web sites outside the United States, either through licensees or through wholly owned subsidiaries, which serve investors in the United Kingdom, Denmark, Norway, Sweden, South Africa, Germany, Australia and New Zealand, Canada, Denmark, Japan, and Korea. After terminating an agreement with a French licensee, the company is seeking to re-enter the French market. E*Trade's international strategy is to leverage its brand name, Web site design, and proprietary technology to create a fully electronic cross-border trading network. By linking financial markets globally, the company hopes to make trading in foreign securities an affordable reality for retail investors. The prototype for this vision is E*Trade Sweden, which launched during fiscal 2000 and allows Swedish customer to purchase U.S. equities online in real time.
E*Trade Group provides financial services to institutional investors internationally through TIR Holdings Ltd., which it acquired in 1999, and Versus Technologies Inc., which it acquired in 2000. The acquisition of TIR expanded E*Trade's business to include institutional investors. TIR provides global multi-currency securities execution and settlement services, along with independent research, to institutional investors. Versus is a Canadian-based provider of electronic trading services for both institutional and retail investors. The company was E*Trade's licensee in Canada prior to its acquisition. Following the acquisition of Versus, E*Trade incorporated Versus' proprietary electronic trading technology into its global product offerings.
E*Trade customers can buy and sell more than 5,000 mutual funds through the company's Mutual Fund Center, which was established in 1997. Included among the mutual fund offerings are eight proprietary mutual funds, four of which were launched in fiscal 2000. Other services and activities include corporate financial services relating to employee stock option and stock purchase plans and the operation of two venture capital funds.
ONE OF THE FIRST ALL-ELECTRONIC BROKERAGES
E*Trade Securities was founded in 1992 in Palo Alto, California, as a subsidiary of Trade*Plus, but its online trading technology was in use as early as 1983. Trade*Plus was a service bureau founded in 1982 by Bill Porter, a physicist and inventor with more than a dozen patents. The company provided online quote and trading services to Fidelity, Charles Schwab, and Quick & Reilly. When Porter asked himself why he had to pay a broker hundreds of dollars for stock transactions, he realized that someday everyone would have computers and use them to buy and sell stocks and other securities. It wasn't until 1992 that Porter launched E*Trade Securities, one of the first all-electronic brokerages. At first E*Trade offered online investing services through America Online and CompuServe. From 1993 to 1995 E*Trade made Trade*Plus the fastest-growing private company in Silicon Valley, according to a survey by The Business Journal. E*Trade's lowest trading fee was $19.95, and in 1994 sales from Trade*Plus and E*Trade reached $10.9 million. In 1996 E*Trade began Internet trading with the launch of www.etrade.com.
By 1996 E*Trade had evolved organizationally from an entrepreneurial type of company to one with a more well-defined corporate structure. In March 1996 Porter turned over his CEO duties to Christos Cotsakos while remaining as chairman. Cotsakos was a decorated Vietnam veteran with 19 years of experience with Federal Express and five years at A.C. Nielsen Co., where he was co-CEO, chief operating officer (COO), president, and a director. Under Cotsakos's leadership, E*Trade would become a public company and one of the leading online financial services companies. In April 1996 the company opened a second facility in Rancho Cordova, near Sacramento. Its goal was to duplicate operations there, so there would never be any lost connections with clients. In August the company went public as E*Trade Group Inc. with an initial public offering (IPO). By the end of December 1996 E*Trade had 112,800 customer accounts, up three times from the previous year.
In 1997 E*Trade raised additional capital through a secondary offering. During the year the company launched E*Trade Canada, its first international venture, as well as its Mutual Fund Center, which initially offered some 3,500 funds. Revenue for the year was $142.7 million, and the company was profitable with net income of $13.9 million. Perhaps the most challenging event of the year was the stock market "crash" of October 20, 1997, when on two consecutive days the Dow Jones Industrial Average and the NASDAQ Composite Index experienced the largest one-day point drops and the largest one-day point gains in the history of Wall Street. Trading volume reached never-before-experienced levels. On the Monday following "Black Friday," E*Trade processed 45,000 transactions.
By the end of calendar 1998 E*Trade had nearly 700,000 customer accounts and claimed to retain more than 95 percent of its accounts. The launch of a redesigned Web site, dubbed Destination E*Trade, in September 1998 helped the company gain industry recognition as the leading online brokerage service for the second half of the year. Heavy expenditures on the new Web site and related marketing costs resulted in an anticipated loss on annual revenue of $245 million. In December 1998 the company launched its E*Trade Bond Center, bringing the benefits of online brokerage and financial services to fixed-income investors. Other events for 1998 included two acquisitions: OptionsLinc, a Web-and telephone-based service for executing and managing employee stock option and purchase plans; and Share-Data Inc., the leader in stock plan software for private and public companies. The two acquisitions gave E*Trade an entry into the large corporate marketplace. The company improved its capital position with a $400 million strategic investment from Softbank Corp., its Japanese partner and that country's leading software distributor. Internationally, E*Trade added two licensees in Japan and the United Kingdom, for a total of 11 master licensees serving more than 32 countries.
In 1999 E*Trade's brand-building expenditures and temporary moratorium on profits paid off. The company's revenue climbed to $621.4 million for fiscal 1999 ending September 30, with a reported net loss of $54.4 million. Much of the revenue was used to build one of the strongest brands in online financial services, and to fuel new product development and diversification. The launch of Destination E*Trade in September 1998 helped the company to gain 1 million net new active accounts in fiscal 1999. E*Trade was receiving an average of $52 million in deposits every business day, compared to an average of $20 million the previous year. Customer assets increased 154 percent to $28 billion. Market share, as measured by online trades per day, rose from 10 percent of the market to 15 percent, and Opinion Research Corp.'s Internet Brand Study ranked E*Trade as the fourth-most-recognized e-commerce brand, behind Amazon.com, eBay, and Priceline.com. In its fourth quarter of 1999 E*Trade had 4.69 million unique visitors, making it the most visited online investing site, according to Media Metrix. The company also expanded its Mutual Fund Center, offering more than 5,000 funds and introducing four E*Trade proprietary funds.
Internationally, E*Trade expanded in fiscal 1999 by opening Web sites in France, Japan, Sweden, and the United Kingdom. It completed three major acquisitions: ClearStation Inc., a financial media Web site that combined investment analysis with community discussion and opinion; TIR Holdings Ltd., discussed above; and Confluent Inc., whose main product was a calendar engine that E*Trade planned to use to create a personal financial manager.
DIVERSIFIED REVENUE STREAMS AIMED TO BALANCE GROWTH
E*Trade's revenue diversification strategy was designed to reduce the company's reliance on online trading volume as a primary source of revenue. Planned diversifications included Internet banking, the IPO market, stock plan management services for corporations, and venture capital funds. The company's pending acquisition of Telebanc Financial Corp., which operated the leading Internet bank, signaled E*Trade's entry into Internet banking. Announced in mid-1999, the acquisition of Telebanc closed in January 2000. E*Trade Bank was launched in April 2000, and wireless banking and brokerage services were first offered by E*Trade in October 2000. E*Trade's stock plan management services were organized under the company's E*Trade Business Solutions Group (BSG), and the company launched its first Strategic Venture Fund in fiscal 1999 to invest in technology and Internet companies.
E*Trade returned to profitability in fiscal 2000 ending September 30, 12 months ahead of plan. For the year the company had $1.4 billion in net revenue and net income of $19.2 million. The growth in revenue was attributed to the successful diversification of E*Trade's revenue stream. The company had $475 million in earnings before marketing expenses, a testament to the strength of its business model. Annual revenue per customer amounted to $547, compared to a customer acquisition cost of $263 per customer. During fiscal 2000 E*Trade doubled its customer base to more than 3 million customer accounts.
E*Trade's branding strategy contributed to a successful first year for its E*Trade Bank, which was signing up new customers at twice the rate of the old Telebank. During fiscal 2000 the bank's deposits surpassed $4.6 billion, and its total assets were $9 billion, making it the 19th-largest federally chartered savings bank in the United States. E*Trade Bank contributed 52 percent of the E*Trade Group's total interest income and 25 percent of its gross revenue. The company also benefited from cross-selling its online brokerage service to the bank's customers at an acquisition cost of only $60 per customer. The company believed that its new ATM network represented the next growth phase for E*Trade Bank.
Global growth also was strong in fiscal 2000, another testimonial to the company's brand recognition. E*Trade in the United Kingdom, Sweden, Canada, and Australia all recorded triple digit growth in accounts and assets. The company consolidated E*Trade Germany, gaining 100-percent ownership there as well as a banking license. E*Trade South Africa was launched during the year, and in September 2000 E*Trade Japan completed its IPO. E*Trade sold 20 percent of its equity stake in E*Trade Japan for $80 million, while retaining a 32-percent interest in the venture. For 2001 E*Trade planned to roll out its international trading platform, based on Versus Technologies, for more than 650 institutional customers worldwide.
Looking to the future, E*Trade planned to penetrate consumers' lives even more through the introduction of E*Trade Zones in retail outlets, starting with SuperTarget stores. E*Trade Zones would feature ATMs, customer service representatives, and full-service E*Trade financial kiosks offering brokerage and banking capabilities, electronic transfer of funds, streaming media, and more. In the corporate marketplace, E*Trade planned to launch E*Trade Virtual Credit Union to make the E*Trade brand part of corporate infrastructures throughout the United States. In addition, its Business Solutions Group was poised to reach 1.3 million employees of its corporate customers, representing more than $130 billion in unrealized assets in vested and unvested options. With such a diversity of potential revenue sources, E*Trade appeared to be in a strong position to weather the bear market of 2001 and the expected reduction in online trading volume.
"Company Information." E*Trade Group Inc. March 17, 2001. Available from www.etrade.com.
Fernandes, Lorna. "ETrade Seeking Security in Sacto." The Business Journal. April 8, 1996.
Gerlach, Douglas. "Special Report." PC World. February 1999.
Gunn, Eileen. "Huge Growth for E-Brokers." Internet World. May 3, 1999.
Kerr, Deborah. "Number One: A Second-Thought Success." The Business Journal. October 23, 1995.
Schifrin, Matthew. "E-warning." Forbes. February 22, 1999.
Schnitt, Paul. "Rancho Cordova, Calif., Firm Rides the Electronic Investing Wave." Knight-Ridder/Tribune Business News. January 30, 1997.
Swett, Clint. "California-Based ETrade Takes Huge Gamble with Online Stock Trading." Knight-Ridder/Tribune Business News. June 17, 1998.
Wasserman, Elizabeth. "Online Trading Soars with Stock Market Decline." Knight-Ridder/Tribune Business News. October 28, 1997.
Weisul, Kimberly. "Marketing Can Boost Brokers." [email protected] ctive Week. January 24, 2000.
SEE ALSO: Ameritrade Holding Corp.; Charles Schwab & Co. Inc.; Datek Online Brokerage Services LLC; Day Trading; Volatility