E*TRADE Financial (ETFC) Reports A Y/Y Drop In May DARTs

E*TRADE Financial Corporation (NASDAQ:ETFC) reported a fall in its Daily Average Revenue Trades (DARTs) in the monthly market activity report for May 2016. According to the report, E*TRADE’s DARTs were 149,475, down 6% sequentially and 1% on a year-over-year basis.

Broker performance is generally measured through DARTs that represent the number of trades from which brokers can expect commission or fees. The decrease 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 were approximately 5.04 million, which comprised about 3.27 million brokerage accounts, 1.44 million stock plan accounts and 0.33 million banking accounts.

For the reported month, E*TRADE’s total brokerage accounts included 30,607 gross new brokerage accounts. Notably, net new brokerage accounts were 8,448. Total brokerage accounts reflect the company’s ability to gain and retain customers who trade and invest.

Moreover, E*TRADE’s net new brokerage assets were $1.2 billion compared with a negative $0.4 billion in the prior month.

As of the end of May 2016, E*TRADE’s customer security holdings were $209.1 billion, up from $205.6 billion in the prior month. The company’s brokerage-related cash spiked to $43.2 billion from $42.6 billion in the prior month, with customers being the net buyers of about $0.4 billion in securities. Moreover, bank-related cash and deposits for the company stood at $5.3 billion, in line with the prior month figure.

Peer Performance

Among other investment brokers, Interactive Brokers Group, Inc.’s (NASDAQ:IBKR) Electronic Brokerage segment reported a rise in its brokerage metrics for May 2016 on a year-over-year basis. Total client DARTs were 641,000, up 4% from May 2015 but down 3% from Apr 2016. Further, total customer accounts were 352,600, up 15% from the prior-year month and 1% from the preceding month.

TD Ameritrade Holding Corporation (NASDAQ:AMTD) came up with average client trades per day of 445,000 in its activity report for May 2016. The reported figure declined 5% from the prior month while increasing 4% from the prior-year period.

Our Viewpoint

Amid the challenging economic scenario, growth in DARTs and new brokerage accounts will prove to be beneficial for the company. We, however, are concerned about the sluggish macroeconomic environment, which might lead to lower trading activities. Moreover, fluctuating interest rates are expected to continuously impact the company’s financials in the near term.

Nevertheless, E*TRADE’s initiatives to reduce balance sheet risk appear to be promising. We are also encouraged by the brokerage firm’s restructuring moves and efforts to revamp its brand, launch new products and services, and improve its technology base to offer a better digital experience to customers.

E*TRADE currently carries a Zacks Rank #3 (Hold). A better-ranked investment broker is Raymond James Financial, Inc. (NYSE:RJF) with a Zacks Rank #2 (Buy).

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