RealTime IT News

E*Trade: Marketing Costs to Produce Losses Through Fiscal 1999

Online brokerage E*Trade Group Inc. in Palo Alto, CA said it may lose money through fiscal 1999 as it spends heavily to promote its Internet site.

Leonard Purkis, the company's chief financial officer, said E*Trade will probably lose an unspecified amount in its fiscal 1998 fourth quarter, which ends in September, and could have a small loss in fiscal 1999, reflecting higher advertising and marketing costs, according to a Bloomberg News report.

The brokerage is increasing promotional spending for its Web site, hoping to convert visitors into brokerage customers or sell them other financial products, such as mortgages and credit cards.

"We're investing in marketing, technology and infrastructure with the aim of adding 1 million incremental accounts" over the next one to two years, Purkis said in an interview With Bloomberg at a BancAmerica Robertson Stephens conference in San Francisco.

The brokerage had about 460,000 accounts at the end of June. In fiscal 1996 and 1997, it spent about $38 million promoting its brand, Bloomberg reported.

The brokerage's fourth-quarter loss will also reflect costs associated with E*Trade's purchase of ShareData Inc., a closely held maker of software to manage corporate stock option plans, and a $12.5 million payment to America Online for advertising, Purkis said.

E*Trade shares have dropped 25% in the past three weeks on concerns that advertising costs will hurt financial performance in the next few quarters. The stock closed Tuesday at $25.12, down 75 cents. Its 52-week high is nearly $48.

In a conference presentation, E*Trade Senior Vice President Rebecca Patton said the firm's marketing offensive is designed to establish the brokerage's Web site as a "category killer," a destination computer users pick first when seeking financial information or resources on the Web.

"The whole goal is to suck you in," Patton was quoted as saying. "Then we can add advertising, subscription and commercial revenue to revenue from brokerage transactions."