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optionsXpress (Nasdaq: OXPS ) , which is in the process of being acquired by Charles Schwab (NYSE: SCHW ) , saw its second-quarter earnings plunge 43%, to $8.8 million, due to a sudden drop in trading activity.
Although declining trading volumes have been a general trend this earnings season, Schwab managed to overcome falling trading volumes to post a 16% rise in quarterly earnings. On the other hand, peer TD AMERITRADE (Nasdaq: AMTD ) saw its profits slip by 12% as trading volumes fell. Is Schwab inheriting a dying business, or is optionsXpress doing just fine?
A look at the numbers
Revenue at optionsXpress for the quarter fell to $59.2 million, down 10% on a year-on-year basis. However, the number of customer accounts grew 8%, with optionsXpress ending the quarter with 397,400 customers.
Retail daily average revenue trades (DARTs), an important metric in the brokerage industry, in the quarter stood at 32,200, down 12% on a sequential-quarter basis and 2% on a year-on-year basis. This explained much of the drop in overall revenues.
Competitor E*TRADE (Nasdaq: ETFC ) saw its DARTs cool off by 17% sequentially and 13% from a year ago. Average trades fell by 13% at Schwab and by 11% at TD AMERITRADE on a year-on-year basis during the same period.
In addition, a $1.6 million expense related to the Charles Schwab merger weighed on the second-quarter earnings as well. The merger should come into effect from the third quarter, so this is probably the last time optionsXpress will be reporting its income as a single entity.
What Chuck should look at
Not everything was sloppy this quarter. optionsXpress saw some positives, too: Not only did customer accounts jump, but customer assets increased to $8.4 billion, up 20% from a year ago. This will come as good news to Schwab.
Moreover, Schwab investors should not be disheartened by one bad quarter. Schwab is acquiring a company with strong fundamentals, and one which has been delivering strong DARTs in recent times. This quarter appears to be a minor blip as the entire industry has had to face a decline in trade volumes.
The Foolish bottom line
This wasn't the best quarter for optionsXpress in terms of revenue growth and earnings. However, there were a few positives in the quarter. Add Schwab to your free stock watchlist to keep an eye on how things go as the merger progresses.