September 16, 2004

1
Team Presentation
September 16, 2004 Mahn Chey Sandra
Chong Gerald Koh Jeong Min Lee Jun Kyu
Lee Cynthia Morikone
2
Contents

• Overview
• Business Model
• Competitive Structure
• Value Chain Analysis
• SWOT Analysis
• IT Use
• QA

3
ETRADE FINANCIAL has emerged as a diversified
financial services company.
Overview

• Website www.etrade.com
• Core strategy is to create value for customers
  and competitive advantage by utilizing technology
  primarily through electronic delivery channels
• The third largest online brokerage and a leading
  site for active traders.
• More than 4 million account holders trade stock
  through online services, the Internet and phone.
• Power ETRADE 9.99 flat commissions and
  9-second execution guarantee
• The eighth largest OTS1)-regulated financial
  institution.
• The second largest domestic ATM network

Customers
Products

• Retail
• Corporate
• Institutional

• Brokerage
• Banking

Channels

• Web
• ATMs
• Financial Centers
• Relationship Managers
• Call Centers

1) OTS Office of Thrift Supervision (U.S. Dept.
of Treasury) Source Yahoo! Financial, Hoovers
Online, ETRADE website
4
Building on its foundation in online brokerage,
ETRADE has expanded to provide an integrated
financial services
Overview Brief History

• 1982 William Porter founded ETrade, an
  electronic brokerage service for stockbrokers
• 1992 Established ETrade Securities, which
  became one of the pioneers in electronic
  brokerages
• 1996 Began offering its services on the
  Internet with the launch of its website
  www.etrade.com
• 1996 IPO
• 1998 Began to position itself globally
  (Australia, Canada, Germany, Israel, Korea and
  Japan)
• 1999 Acquired Telebanc, an online bank with
  more than 100,000 depositors, and started
  ETRADE Bank
• 2000 Acquired more than 4,000 ATMs from
  XtraCash ATM, Inc.
• 2001 Began the consolidation, restructuring and
  exit of certain international brokerage
  operations
• 2002 Became ETRADE Financial
• 2003 Progressing on its restructuring plan
  implementation

Source Yahoo! Financial, Hoovers Online,
ETRADE website
5
Etrade provides a wide array of financial
services to retail, corporate, and institutional
customers
Business Model Products and Services
ETRADE Product and Service Offerings
Retail
Corporate
Institutional
Brokerage

• U.S. retail
• International retail
• Professional trading

• Stock plan administration
• Options management

• Institutional marketing making
• Cross-border trading
• Independent research

Bank

• Deposits (checking, savings)
• Credit cards
• Mortgages
• Consumer finance
• Insurance
• ATM Network

• Money management programs
• Employee banking

• Asset management
• Investment portfolio
• Correspondent mortgage

Source ETRADE 10-K, 10-Q SEC Filings,
www.etrade.com
6
Diversification drives revenue growth
Business Model - Revenue
Net Revenues (2002)
Revenue growth (1996-2002)
Unit Million
Other banking related revenues
1,326 Million
Gain on sales of loans held-for-sale and
securities
Gain on sales of originated loans
Commissions
Net banking interest income
Net brokerage Interest income
Other brokerage related revenue
52 Million U.S. retail brokerage
Principal transactions
Brokerage
Banking
867 Million (65.4)
459 Million (34.6)
Source ETRADE 10-K SEC Filings
7
Cost of services and operating expense are 43
and 38 respectively as a percentage of revenue.
Business Model - Cost
Cost of services and operating expenses (2002) (
million)

• Cost of services
• Customer service, system maintenance and
  technology operation.
• General and administrative expenses
• Executive and administrative personnel,
  professional services and other corporate
  activities
• Selling and marketing expenses
• Expenditures for advertising placements, creative
  development and collateral materials
• Technology development
• Design and development expense to internally
  develop software to add substantial new
  functionality

General and administrative
Selling and marketing
503
Technology development
Total net revenue
Cost of services
Operating income
Operating expenses
Source ETRADE 10-K SEC Filings
8
However, profitability has been low and was
severely strained in the recent economic slowdown
and fierce competition
Business Model - Profitability
ROE, (1996 - 2002)
Source ETRADE 10-K SEC Filings, www.etrade.com
9
1996 Market Space
Competitive Structure
10
Current Market Space
Competitive Structure
11
Competitive Structure using Porters model
Competitive Structure
12
Value Chain Analysis
Value Chain
Source PriceWaterhouseCoopers
13
SWOT Analysis
SWOT
Opportunities
Strength

• Economic recovery
• Increasing number of internet users
• High switching cost

• First mover strong ecommerce brand
• Strong IT background
• Efficiency and scalability of its E-business
  model
• Revenue diversification
• Personalized and integrated online hub

Threat
Weakness

• Customers service demand increase
• Intense competition
• High switching cost
• Easily be commoditized

• Hard to expand services that require human
  interaction

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Leveraging IT and passing savings on to customers
IT Use
Early Stage
Today

• IT Background On-line brokerage services
  provider
• Outstanding IT system
• Reduced cost commission ? Attracted more
  frequent traders

• Backbone of the company's strategy
• Fully integrated financial operations
• Digital Financial Media wireless trading
  anytime, anywhere and from any device
• Global cross-border trading network

15

• Thanks!
• Q A