Ameritrade Holding Corp - Ameritrade Inc. Launched In 1997

AMERITRADE INC. LAUNCHED IN (1997)

Ameritrade Holding Corp. had its initial public offering (IPO) on March 3, 1997, with shares opening at $15 per share. During the year the company established marketing alliances with America Online, The Microsoft Network, The Motley Fool, Yahoo!, the Quicken.com Channel, and Infoseek's Personal Finance Channel. In October 1997 Ameritrade Inc. was launched, incorporating the most popular features of Aufhauser, Ceres, and eBroker into one firm and offering breakthrough pricing of $8 per Internet trade. It also was during 1997 that Ameritrade Holding began developing OnMoney, its Internet-based financial services mall.

By mid-1997 Internet trading had grown to about 25 percent of the firm's brokerage activity, or about 25,000 trades per month. Following the consolidation of Aufhauser, Ceres, and eBroker into Ameritrade Inc., the company launched a $20 million national advertising campaign focusing on the Ameritrade's online trading fee of $8. For fiscal 1997, ending September 26, Ameritrade Holding reported net income of $13.8 million on net revenue of $77.2 million (subsequently restated to $95.7 million).

Heavy advertising expenditures helped to increase the number of new accounts at Ameritrade and boost revenue, but they also resulted in much higher quarterly losses. For the first quarter of fiscal 1998 the company reported a loss of $11.2 million on revenue of $25.7 million, while customer accounts increased by 50 percent to 147,000. The company handled an average of 10,600 trades a day during the quarter. Ameritrade justified its strategy of pursuing market share by noting that online accounts were relatively cheap to acquire through advertising and marketing. In mid-1998 Ameritrade expanded its relationship with America Online by committing to pay $25 million over two years for a prominent spot on America Online's finance page. After reporting losses for the first two quarters of fiscal 1998, Ameritrade had a profitable third quarter as it began earning revenue from newly acquired customer accounts.

Ameritrade's average number of online trades was 21,400 by mid-1998. Market turbulence later in the year resulted in a one-day record of 35,000 trades for the company. In some cases the high volume of trading resulted in temporary shutdowns of Ameritrade's service, something Chairman and CEO J. Joe Ricketts termed "a multi-million dollar fiasco." Installing new software was one of the problems facing the company. The other was the possibility of declining stock prices and the lower trading volumes that might result. For fiscal 1998 Ameritrade reported revenue of $134.9 million (later restated to $164.2 million). The company barely broke even, with net income of $210,438. For the year it spent $40 million on advertising, and the number of accounts more than tripled to 306,000. Other developments during the year included the introduction of electronic trade confirmations by e-mail and Internet-delivered stock quotes.