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NDB expects strong Q3
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February 29, 2000: 2:23 p.m. ET
Online broker's anticipated earnings prompts spurt in broker stock prices
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - Online brokerage National Discount Brokers on Tuesday said it expects to crush analysts' estimates and to see record third-quarter sales and earnings when it announces its numbers March 21. The news prompted a bump in the shares of many of the online brokers.
Jersey City, N.J.-based National Discount Brokers (NDB: Research, Estimates) expects earnings of $0.95 to $1.05 for the quarter ended Feb. 29, on record revenue of $125 million to $135 million. Analysts had expected earnings of just $0.08, according to a survey by First Call, way down from $0.55 a share the same quarter the previous year.
"We're obviously quite pleased with the results," said Dennis Marino, chairman of NDB.com and a director of the parent company, National Discount Brokers Group Inc. "We come in every day and work hard to build value for our customers and for our shareholders. I think this to some extent validates our business strategy."
NDB is the ninth-largest brokerage in terms of accounts, with 196,000 at the end of 1999, according to U.S. Bancorp Piper Jaffray. Its stock has typically traded at a discount to its peers.
Shortly before 1 p.m. ET it was trading up 29 percent, or 9-1/16, to 40-1/16. "Today certainly recognizes a bit more value in NDB than there was," Marino said.
Besides growth in accounts and trading activity at NDB.com, NDB said its record results also stemmed from its Sherwood Securities subsidiary, which had profited from trading opportunities.
Greg Smith, an online brokerage analyst with Hambrecht & Quist, said NDB's news reinforces his view that online brokerage companies in general are experiencing record trading volumes.
"Lots of brokers are going to have their best quarter ever," Smith, who does not track NDB as an individual stock, said. "This announcement is obviously a confirmation of what I have been thinking."
Smith said his index of online trading strength is at a record level. But after trading volumes declined in the third quarter of 1999, pessimism crept into the market. Online broker stocks have been depressed ever since, thanks to fears that there are too many online brokers competing for too few trades, and also that the brokers have too much risk from margin loans they have made.
Smith thinks the fears of bearish investors are groundless. "What they don't realize is everyone is doing well," he said. He thinks investors are now realizing the third quarter's low trading volumes were an aberration. "People have finally gotten hit on the head. I don't know what it takes for people to realize how good things are."
Because NDB's Feb. 29 end-of-quarter date is so unusual, the company's results often act as a leading indicator in the online brokerage world. In this case, NDB's results suggest that the other brokerages will come in with good numbers when they report earnings in April.
All the online brokers moved in sympathy with NDB. Ameritrade (AMTD: Research, Estimates) saw the biggest jump, rising 10 percent to 17-3/4.
TD Waterhouse (TWE: Research, Estimates), which also has an atypical fiscal year and already reported strong results for its first quarter, which ended in January, was up 8 percent to 18.
Charles Schwab (SCH: Research, Estimates) got a boost of 7 percent to 40-1/16. The story was the same for E*Trade (EGRP: Research, Estimates), up 1-5/8 to 24-1/2, and for DLJ Direct (DIR: Research, Estimates), up 7 percent to 10-1/4.
Because there is considerable short-selling interest in online brokers, any rally in their stocks is accentuated by short sellers trying to cover their positions. That makes online brokerages a volatile sector to invest in.
"The pendulum in this space always swings too far," Smith said, adding that there was a very bullish run in 1999 followed by heavy selling toward the end of the year. "There are differences of opinion in this space. Now the bulls are starting to win again, and rightly so in my mind." 
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