E*Trade Financial, one of the nation's largest discount brokerages, on Thursday said robust stock trading and two recent acquisitions helped secure a record fourth-quarter profit that surpassed Wall Street expectations.
The New York-based company said profits rose to $176.7 million, or 40 cents per share, from $129.4 million, or 32 cents per share, last year.
Revenue surged 31% to a record $628.8 million from $478.9 million a year earlier.
Results surpassed Wall Street projections for earnings of 39 cents per share on $626.9 million in revenue, according to analysts polled by Thomson Financial.
"The thing we're most happy about is that this is the right progression toward 2007, which is budgeted to be our fifth consecutive record year," said Jarrett Lilien, the company's president and chief operating officer. "We're growing at really, really good rates."
E*Trade held a conference call and webcast Thursday at 5:00 pm New York time.
The strong fourth-quarter report helped push 2006 results to a record. E*Trade's profit rose 46% to $628.9 million, or $1.44 per share, from $430.4 million, or $1.12 per share, in the previous year.
Business generated the acquisitions of BrownCo. and Harrisdirect in 2005 helped boost revenue 42.4% to $2.42 billion from $1.7 billion in the previous year.
Wall Street expected a full-year profit of $1.47 per share on revenue of $2.42 billion.
Lilien said the bulk of this growth is because E*Trade has shifted its focus to customers with assets between $50,000 and $500,000. This group comprises about 33 million households in the U.S., and is a segment he said big Wall Street brokerages overlook.
The company plans to build up this group in the next few years. E*Trade said it plans to expand its overseas operations this year by either organic growth or acquisitions. Organic growth typically excludes the effects of acquisitions.
Lilien expects this will increase the company's daily average trades, which during the fourth quarter averaged 155,626, up 15% from the third quarter and 21% from the year-ago period.
The jump in daily trades also comes as E*Trade and other brokerages have enjoyed an unprecedented period of stock trading. The Dow Jones industrial average rose to a record high in 2006, driven in part by robust acquisition activity and a surge in initial public offerings.
E*Trade has been fighting for market share in a highly competitive industry, and as rivals have become stronger through acquisitions.
Its main rival, TD Ameritrade, was created through the 2005 combination of Ameritrade and TD Waterhouse. Meanwhile, Charles Schwab has been able to maintain its dominance in the industry without a transformative deal.
E*Trade has for the moment adopted a "go it alone" strategy, and doesn't think a major deal needs to happen to stay competitive, Lilien said. The company has steadily pushed to transform itself into a financial services company, with banking and equity management services, to better compete.
"Our job here is to maximize shareholder value, and you can do that in a number of ways," he said. "You can do it by buying things; or, if the right deal comes along and someone bids for us, that's a way too."