E*Trade Group Inc - Diversified Revenue Streams Aimed To Balance Growth

DIVERSIFIED REVENUE STREAMS AIMED TO BALANCE GROWTH

E*Trade's revenue diversification strategy was designed to reduce the company's reliance on online trading volume as a primary source of revenue. Planned diversifications included Internet banking, the IPO market, stock plan management services for corporations, and venture capital funds. The company's pending acquisition of Telebanc Financial Corp., which operated the leading Internet bank, signaled E*Trade's entry into Internet banking. Announced in mid-1999, the acquisition of Telebanc closed in January 2000. E*Trade Bank was launched in April 2000, and wireless banking and brokerage services were first offered by E*Trade in October 2000. E*Trade's stock plan management services were organized under the company's E*Trade Business Solutions Group (BSG), and the company launched its first Strategic Venture Fund in fiscal 1999 to invest in technology and Internet companies.

E*Trade returned to profitability in fiscal 2000 ending September 30, 12 months ahead of plan. For the year the company had $1.4 billion in net revenue and net income of $19.2 million. The growth in revenue was attributed to the successful diversification of E*Trade's revenue stream. The company had $475 million in earnings before marketing expenses, a testament to the strength of its business model. Annual revenue per customer amounted to $547, compared to a customer acquisition cost of $263 per customer. During fiscal 2000 E*Trade doubled its customer base to more than 3 million customer accounts.

E*Trade's branding strategy contributed to a successful first year for its E*Trade Bank, which was signing up new customers at twice the rate of the old Telebank. During fiscal 2000 the bank's deposits surpassed $4.6 billion, and its total assets were $9 billion, making it the 19th-largest federally chartered savings bank in the United States. E*Trade Bank contributed 52 percent of the E*Trade Group's total interest income and 25 percent of its gross revenue. The company also benefited from cross-selling its online brokerage service to the bank's customers at an acquisition cost of only $60 per customer. The company believed that its new ATM network represented the next growth phase for E*Trade Bank.

Global growth also was strong in fiscal 2000, another testimonial to the company's brand recognition. E*Trade in the United Kingdom, Sweden, Canada, and Australia all recorded triple digit growth in accounts and assets. The company consolidated E*Trade Germany, gaining 100-percent ownership there as well as a banking license. E*Trade South Africa was launched during the year, and in September 2000 E*Trade Japan completed its IPO. E*Trade sold 20 percent of its equity stake in E*Trade Japan for $80 million, while retaining a 32-percent interest in the venture. For 2001 E*Trade planned to roll out its international trading platform, based on Versus Technologies, for more than 650 institutional customers worldwide.

Looking to the future, E*Trade planned to penetrate consumers' lives even more through the introduction of E*Trade Zones in retail outlets, starting with SuperTarget stores. E*Trade Zones would feature ATMs, customer service representatives, and full-service E*Trade financial kiosks offering brokerage and banking capabilities, electronic transfer of funds, streaming media, and more. In the corporate marketplace, E*Trade planned to launch E*Trade Virtual Credit Union to make the E*Trade brand part of corporate infrastructures throughout the United States. In addition, its Business Solutions Group was poised to reach 1.3 million employees of its corporate customers, representing more than $130 billion in unrealized assets in vested and unvested options. With such a diversity of potential revenue sources, E*Trade appeared to be in a strong position to weather the bear market of 2001 and the expected reduction in online trading volume.