As the financial world turns, more and more of it seems to end up on the Web. E-Trade, one of the first to tackle Net-based trading, hinted that it may be fueling up for a growth spurt when it filed an SEC registration for a second public offering on Wednesday. At the same time old-timers Dow Jones and IBM introduced a free risk-analysis Web site, hoping to pique the interest of the sophisticated investor.
Observers say that E-Trade isn't in need of cash and may be raising the bucks for a rainy-day acquisition of a smaller competitor or some complementary technology company that will bolster the proverbial little guy in its battle against the established brokerages, like Schwab, as they move online.
Proceeds from the 5 million shares E-Trade will put on the market will "be used for general purposes," the company said in a press release. The company said general purposes include working capital, new products, international expansion, and possible future acquisitions. An additional 2 million shares are being offered by shareholders to make a total public offering of 7 million shares. Price for existing E-Trade stock dropped nearly a point on Wednesday to close at 25 3/8, perhaps signaling the testiness of existing investors to the news.
Eventually, analysts say there is bound to be consolidation in the brokerage market. E-Trade may be wise to pack its pockets in anticipation, although some would argue that there will be enough fallout from traditional brokerages to keep most of the online trading posts in business for a while.
"People don't want to talk to brokers anymore," argued Rodger Mastako, managing director of the Optionslink division at Hambrecht & Quist. "The world has changed." He figures it will be a while before the US is wired with fast enough Net access to get everyone trading online. As that happens, it will trigger a brokerage shakeout, leaving folks like Merrill Lynch, Prudential, and Paine Webber in the dust if they don't hurry up and gravitate toward the Web.
Already "the easy pickin's are done," said Mastako, speaking of big-league investors who were quick to see the advantages of going online. Costs are dramatically lower and the investor is in more control on the Web. The emphasis put on the price point is more than clear at PC Financial Network, which has seen its volume go up more than 50 percent since it dropped its fee last month to a flat $20 per transaction of up to 1,000 shares, said PCFN CEO Blake Darcy.
Pricing will likely even out with time, just as it has among ISPs - and the differentiating feature will become service, including financial analysis and advice - even for customers at discount brokerages.
"The same tools that some of the best brokers have are being delivered into the hands of the affluent and emerging affluent," said Cliff Condon, a money and technology analyst at Jupiter Communications. Companies across the board are looking for products and services they can offer as a hook to get people's attention and lead them to the core of their business, he added.
That's just what Dow Jones, IBM, and a risk-management software company called Infinity Financial Technology have put together. The joint venture basically puts Dow's Global Indexes into a beefy computer accessed from the Net that can calculate the value and risk of almost any portfolio. Available next month, riskview.com is a freebie service designed essentially to promote the companies involved, said Dow Jones spokesman Richard Tofel.
While no one likes to buck free information, analysts said the high-level site won't be of much value for the average investor. Even Tofel was cautious about the site's appeal: "One wouldn't want to kid oneself. It's not a lot of use to someone who has seven stocks worth $20,000," he said, explaining that mainly it's people with significant amounts of money to invest who are concerned with risk management.
