TradeStation Takes a Bullet in Online Broker Price War; TRAD, IBKR, OXPS
| 11 February 2010
Apparently even the ability to trade
as low as $1 per share isn't enough to shield TradeStation Group (TRAD) from the effects of an all-out price war. While the larger firms like Schwab and Fidelity fiddle with prices TradeStation burns -- and not in a good way.
The company
reported fourth quarter results today, missing even their own
lowered guidance. The company suggested $0.08 per share was reasonable but was only able to eek out $0.07 per share. The company blamed the miss on lower commissions, driven primarily by lower trading activity. DARTs dropped 35% in the quarter compared with Q4 2008.
This news runs counter to the results we've seen from competing firms such as Interactive Brokers (IBKR) and optionsXpress (OXPS), both of which registered an increase in trading activity recently. Their lackluster results have instead been blamed on tight spreads (IBKR) and lower margin rates (OXPS), among other things.
We wondered aloud just how far the firm would dive in our
last update. Now we wonder whether the slide, as dramatic as it's been, isn't yet over. The company seems to have a hole in its bucket that it can't plug. In fact, TradeStation lowered its own guidance for Q1 to between $0.05 and $0.07 per share.
What TradeStation has going for it is its ability to control costs and still generate income, despite near-catastrophic drops in activity and revenue. "We continue to generate positive net income – for the 31st consecutive quarter – and have cash and cash equivalents and marketable securities of about $134 million, and no debt," said David Fleischman, the company’s Chief Financial Officer.
The company is on an IV drip of cash and securities that should keep the patient alive long enough to get back up and fight another day. But it won't be easy. Competing brokers are scrambling to add tools and functionality, lower fees, and diversify revenue streams. It's a war. And they're good shots.
TradeStation is unique in that it relies on hyper-active trading activity to drive growth. Their accounts trade an average of 434 times per year. These traders are attracted by low commissions and a unique trading platform that allows for rules-based and program trading. These results seem to indicate, however, that either their clients are blowing themselves up or they're finding robust-enough tools and cheap enough commissions elsewhere.
The firm also reported January business metrics today. DARTs were off 18% versus January 2009.
