| 27 April 2010

OptionsXpress (OXPS) dropped their Q1 results on us this morning, illustrating quite clearly what a slog it's going to be for brokers this year. Compared with their fourth quarter results, the firm saw a 5% decrease in net revenues and a 20% dip in net income. (About 5% of that dip was due to a one-time severance charge).

"We saw improvements in many of our key long-term growth metrics at optionsXpress in the first quarter despite macroeconomic conditions that we believe continue to temper account acquisition efforts and trading activity," said David Fisher, CEO ofthe firm . "These attractive core trends reinforce our belief that the ongoing investments we are making in our business have strengthened the core franchise." So let's take a close look at those core trends, shall we?

First we dive into DARTs, which saw some improvement in the first quarter. Most firms saw choppy behavior but a nice bump in March. We saw similar trading results from E*TRADE Financial (ETFC) and TD AMeritrade (AMTD). We are less concerned about DARTs than we used to be given the net impact of the recent price war on trade-related margins.



Net new accounts for the firm climbed in March, a direct result of increased marketing spend. "We increased our advertising spend in the first quarter as planned in anticipation of a better seasonal new account environment," said CFO Adam DeWitt. "We did begin to see some improvement in March as net new accounts reached their highest level since October 2009 and we have seen this improvement continue into April."



A big thank-you to the optionsXpress teamfor actually breaking out the cost t acquire these new accounts. Something we wish other brokers would do as well. In the meantime, we'll have to do it ourselves and call out the losers, like E*TRADE's recent $20,092.22 cost per net new account we talked about here. Compare those results with the spend you see below and the OXPS marketing team starts to look like a group of geniuses by comparison.

Having said that (you knew this was coming, right?) it is worth noting that with their increased spend to grab new accounts optionsXpress has increased their cost to acquire a new customer by 36% over the fourth quarter. Not necessarily a bad thing, but worth keeping an eye on it. (Compare this recent quarter to what they were able to accomplish a year ago, for example, where they acquire far more new accounts for far less cost per account.)



Total Assets for the firm continued to grow. Though so did the overall markets. As we pointed out in our Schwab analysis, the overall performance of the market has a lot to do with the growth of your assets. The S&P 500 gained about 9% over February and March. OptionsXpress, meanwhile, only gained 5.6% in assets. This means that, all things being considered, some customers either lost money trading or actually pulled funds from their accounts.



All in all we suggest that OXPS performance is not bad. Not great either, but they're not making any claims to be blazing trails at this point. We will be keeping a close eye on their marketing spend and new account going forward. We'll also want to watch that assets number and make sure it performs at least as well as the markets in general.