E*TRADE Group Inc.

founded: 1982

Contact Information:

headquarters: 4500 bohannon dr.
menlo park, ca 94025 phone: (650)331-6000 fax: (650)331-6804 url: http://www.etrade.com

OVERVIEW

Considered a pioneer in online trading, E*TRADE Group Inc. operates as a leading online brokerage as well as a diversified financial services firm with nearly 3.5 million active brokerage accounts. Through the E*TRADE Financial brand name, the company offers its retail customers banking, lending, planning, and advice services. In the United States, the firm offers corporate services such as employee stock plan administration and market-making services to brokerage firms. E*TRADE also offers securities brokerage products to its global customers, mainly in Europe, Asia, and South Africa. Strategic moves in the early 2000s include diversifying financial product and service offerings and continuing global expansion. The company has also cut costs and restructured various operations to combat falling revenues in its online trading business.

As part of its restructuring, the firm streamlined its financial services businesses into four main segments in 2001. Through its Domestic Retail Brokerage unit, which includes subsidiary E*TRADE Securities, the firm offers fully-automated stock, option, fixed income, and mutual fund order processing. It provides these services 24 hours a day, seven days a week through the Internet, automated telephone service, direct modem access, Internet-enabled wireless devices, live telephone support, and through the E*TRADE Financial Centers. E*TRADE's Banking segment is the largest Internet bank in the United States with 490,913 accounts at the end of 2001. The Bank offers a wide variety of consumer banking products and services. E*TRADE Access Inc., the firm's ATM network, and E*TRADE Mortgage Corp., a mortgage banking subsidiary, are operated as part of the Banking segment.

The company's third business segment, Global and Institutional, is comprised of E*TRADE Institutional and E*TRADE Technologies Corp. and its international affiliates. The focus of this unit is to develop and launch an electronic trading platform for institutional investors. The company also provides U.S. equities to its customers in foreign countries in real-time via the Internet. All other emerging E*TRADE businesses fall into the Wealth Management and Other segment. This division includes its mutual fund operations, and subsidiaries E*TRADE Business Solutions Group Inc., E*TRADE Advisory Services, and Electronic Investing Corp. (eInvesting). This unit also provides services related to corporate stock option programs, college savings plans, electronic advice, and money management.

COMPANY FINANCES

Most of E*TRADE's sales stem from its U.S. domestic retail brokerage operations. Over the past several years, E*TRADE's revenues have increased dramatically, growing from $285 million in 1998, to $662.3 million in 1999, to $2.2 billion in 2000. During 2001, however, E*TRADE's sales fell 7 percent to $2.0 billion. Net income has fluctuated since 1997, when the firm posted a gain of $13.9 million. In 1998 and 1999, E*TRADE reported losses. Net income bounced back to $19.2 million in 2000, but the firm reported a loss of $241.5 million in 2001, due in part to restructuring charges.

As an Internet-based company, E*TRADE has also seen its stock price rise and fall dramatically. Its low in 1999 hit $2.50 per share, while its high reached $72.25. In 2000, the firm's stock price ranged from $13.13 to $40 per share. It continued to fluctuate throughout 2001 and was trading between $8 and $9 per share in early 2002.

ANALYSTS' OPINIONS

E*TRADE has experienced a varying degree of success. Its stock price soared during 1999, but fell off dramatically in 2000 as the Internet industry became volatile. The firm's dependence on its online trading business hurt profits, and most analysts applaud the company's new strategy of acquisition and expansion into different financial services. Standard & Poor's believes that the firm's cost cutting measures, its emergence in new lines of business, and an improving economy should result in higher revenues and profits in the early 2000s. A November 2001 Value Line Investment Survey suggested that E*TRADE stock remained better suited to high risk investors due the instability in the Internet industry.

HISTORY

In just 20 years, E*TRADE has grown from a $15,000 startup to a diversified financial services firm serving more than 3,000,000 households. Its roots date back to 1982, when William Porter established Trade-Plus to provide electronic brokerage services to stockbrokers. That year, the new company partnered with C.D. Anderson & Co. to develop a computerized order entry system. The system went online in July 1983, when the first online trade was completed.

For the remainder of the 1980s, the company marketed its services to discount brokers. Porter, however, was not satisfied and continued to develop new business plans. He had long been wary of paying high broker fees and set out to create a low-cost online trading venue for individual investors like himself. In 1992, he launched E*TRADE Securities Inc. as one of the first electronic discount brokerage service firms that offered flat rate fees and free information online through America Online and Compuserve. By 1993 revenues had reached $2 million.

In 1994 the company adopted the E*TRADE Group name. Revenues continued to climb to $11 million, making it the fastest-growing private firm in the United States. In 1996, Christos Cotsakos was named president and CEO of the company. That year, E*TRADE went public and launched its own site, etrade.com. Revenues jumped to $52 million, and the firm experienced a dramatic increase in trading volume. The system crashed in May of that year due to the increased volume, and E*TRADE paid out over $1.7 million to compensate its customers for the downtime. Initial problems like these proved short-lived, and E*TRADE entered a period of dramatic growth as the popularity of the Internet grew at breakneck speed. The company began to forge partnerships with the likes of Yahoo! and America Online to promote its online trading services. In 1997, E*TRADE handled the initial public offering (IPO) of Sportline USA Inc. The firm also began its global expansion, focusing on Australia, Canada, Germany, Israel, and Japan.

Towards the end of the 1990s and into the new millennium, E*TRADE began to expand its offerings and also made key acquisitions. It purchased TIR Holdings Ltd., a firm dealing with multiple currencies. In 1999, revenues increased by over 132 percent to $662.3 million. During 2000, the firm acquired Telebanc Financial Corp., Versus Technologies, Card Capture Services Inc., and Electronic Investing Corp. That year, the company launched E*TRADE Bank, an online bank offering a variety of services to consumers.

During 2001 E*TRADE continued to diversify its products and services due in part to the fallout in the dotcom industry. Having relied heavily on its online trading revenues, the firm looked for new opportunities to stabilize its earnings. It moved from the NASDAQ to the New York Stock Exchange that year and continued making acquisitions, including online mortgage originator LoansDirect (renamed E*TRADE Mortgage), PrivateAccounts Inc. (renamed E*TRADE Advisory Services), and online brokerage firm Web Street Inc. The purchase of Dempsey & Company LLC, a market-making services firm, enabled E*TRADE to handle all aspects of equity trading.

STRATEGY

During E*TRADE's short history, its strategy has focused on growth via the use of cutting edge technology. When the hype surrounding dot-com startups began to die in 2000, however, E*TRADE was forced to retool its products and services to decrease its dependency on online trading revenues. By 2002, the firm's strategy included seeking out opportunities to promote product and revenue diversification. E*TRADE launched several new tools on its Web site; expanded through acquisition into a wide variety of financial services including banking, lending, and investment planning and advice; and opened E*TRADE Financial Centers in New York, Boston, Beverly Hills, Denver, and San Francisco. The firm also developed a global homepage in 2001 and continued to utilize its technology platforms to enable international clients to trade U.S. stocks in real-time. As part of its strategy to promote its new offerings, the company launched the E*TRADE Financial brand in February 2002 to reflect its commitment to offering diversified financial services to its customers.

FAST FACTS: About E*TRADE Group Inc.

Ownership: E*TRADE is a public company traded on the New York Stock Exchange.

Ticker Symbol: ET

Officers: Christos M. Cotsakos, Chmn. and CEO, 52, 2001 base salary $575,000; Jerry Gramaglia, Pres. and Chief Customer Operations Officer, 45, 2001 base salary $339,904; Leonard C. Purkis, CFO and CAO, 52; Amy J. Erret, Chief Asset Gathering Officer, 42

Employees: 3,495

Principal Subsidiary Companies: E*TRADE and its subsidiary companies operate in North America, Latin America, the Asia Pacific region, Europe, Africa, and the Middle East. Its major subsidiary companies are E*TRADE Securities Inc., TIR Ltd. Holdings, E*TRADE Financial Corp., and E*TRADE Bank.

Chief Competitors: As a diversified financial services holding company, E*TRADE competes with firms that provide investing, investment planning and advice, banking, and lending services to retail, corporate, and institutional clients. Major rivals include Ameritrade Holding Co., The Charles Schwab Corp., and TD Waterhouse Group Inc.

CURRENT TRENDS

One trend that greatly influenced E*TRADE's product development strategy was a growing demand for "one-stop shopping" financial services. According to an October 2001 Forbes article, "consumers are drowning in seven to ten financial relationships apiece: a bank around the corner, a mortgage lender across the country, a credit card issuer in Delaware and so on. Few investors can see the whole pie." To solve this problem, E*TRADE worked to diversify its services, as well as the ways in which its customers could access those services. In fact, E*TRADE's mission—to enable its customers to have access to their financial information anytime, anywhere, and on any device-was related directly to this trend.

PRODUCTS

E*TRADE offers its investment clients automated order placement and execution of market and limit equity orders, streaming quotes and advanced trading platforms, personalized portfolio tracking, charting and quote applications, access to mutual funds, bond trading, money management, IRA and college saving plan products, real-time market commentary, quotes, news, and professional research reports. The firm's banking services include money market and savings accounts, checking accounts, funds transfer, electronic bill payment, and ATM access. Its lending services provide clients access to mortgages and mortgage refinancing and home equity loans. The company also provides a variety of investment planning and advice services.

To market its various products and launch its new brand, E*TRADE Financial, the firm began offering its services through financial centers in several large cities and also in "financial zones" that it opened in 18 Target stores in six states during 2001. Known for its aggressive advertising campaigns, the firm continued to market its products heavily via television and newspaper, despite a drop in advertising by most dot-com firms. In fact, the company paid $10 million in advertising fees during the Super Bowl in 2002. It sponsored the half-time show, ran commercials, and offered cushions embla-zoned with the E*TRADE logo to fans.

CORPORATE CITIZENSHIP

E*TRADE established the E*SPIRIT Giving Program to provide financial and business resources to nonprofit organizations in local communities. The program offers grants to help fund organizations that share E*TRADE's vision. The grants support organizations and programs that promote education related to the Internet.

CHRONOLOGY: Key Dates for E*TRADE

1982:

William Porter establishes TradePlus

1983:

The system goes online

1992:

E*TRADE Securities begins to offer online investing services

1994:

The company adopts the name E*TRADE Group

1996:

Christos Cotsakos is named president and CEO; the firm goes public

2000:

E*TRADE Bank is established

THE FIRST ONLINE TRADE

A doctor in Michigan placed the first online trade in July 1983, using early E*TRADE technology developed by inventor and physicist William Porter. With just $15,000 in capital, Porter created TradePlus, the predecessor to E*TRADE, to provide online quotes and trading services to brokerage firms. Shortly afterwards, Porter recognized the opportunity to create a company that would provide online trading services to individuals and save them hundreds of dollars in broker fees. Porter's dream turned into a reality as the proliferation of home computers and the increasing popularity of the Internet helped transform E*TRADE into a leading online financial services firm.

GLOBAL PRESENCE

The company's global activity is part of its Global and Institutional business segment. Through its international subsidiaries, E*TRADE offers foreign investors online retail brokerage services and also provides services to institutional investors. By 1998, the company had clients in Australia, Canada, Germany, Israel, and Japan. The company continued its international expansion during 2001 by launching branded retail brokerage Web sites in Hong Kong, Israel, and Germany. The firm also developed a Web-based platform that provided global institutional clients online trading and administrative services. The company's global strategy includes promoting cross-border trading, promoting its financial products to foreign investors, and enabling foreign retail investors affordable access to U.S. equities in real-time via online avenues.

SOURCES OF INFORMATION

Bibliography

bills, steve. "4 q earnings: new mix paid off in 2001." american banker, 16 january 2002.

carey, theresa w. "wild wide on the web." barron's, 18 march 2002.

e*trade home page, 2002. available at http://www.etrade.com.

helyar, john. "at e*trade, growing up is hard to do." fortune, 18 march 2002.

"internet investment survey." the value line investment survey, 30 november 2001.

weinberg, neil. "after the bubble." forbes, 1 october 2001.

For an annual report:

write: e*trade group, 4500 bohannon dr., menlo park, ca 94025

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. e*trade's primary sic is:

6211 security brokers, dealers, and flotation companies

also investigate companies by their north american industrial classification system codes, also known as naics codes. e*trade's primary naics codes are:

523110 investment banking and securities dealing

523120 securities brokerage