optionsXpress Holdings (NASDAQ:OXPS), an online brokerage firm that focuses on options trading, has only been around for about six years. "It's been an incredible ride," CEO David Kalt said Thursday. And it looks like this Motley Fool Stock Advisor pick is going to continue that ride for some time.
For the year, revenues rose 45% to $186.9 million and net income was up 47% to $71.7 million, or $1.15 per share.
However, in the fourth quarter, the pace decelerated. Revenues were up 24% to $49.3 million and net income increased 24% to $19.4 million, or $0.31 per share.
Why the slowdown? First of all, optionsXpress has shown weakness in new account growth. Over the past year, new accounts increased about 26% to 204,600.
Also, because of the conversion to self-clearing (which means optionsXpress will process its own trades), the company had less time to focus on customer acquisition. The good news is that the conversion is complete and should lead to increased cost efficiencies this year.
Next, optionsXpress is facing more competition as other firms realize that the options market for individual investors is lucrative and growing fast.
To deal with this, optionsXpress will ramp up its spending on marketing, advertising, and educational tools. "We will continue to be disciplined in our expenditures," Kalt told the Fool. "Do not expect us to do any Super Bowl commercials." He says the customer acquisition costs will still be competitive with peers such as TD Ameritrade (NASDAQ:AMTD), E*Trade (NASDAQ:ETFC), and Charles Schwab (NASDAQ:SCHW).
A future in futures
Another part of the strategy is to enhance the platform, such as with trading in futures. Because of its strong infrastructure, optionsXpress has been able to grow this business quickly.
But the company wants to be dominant. To this end, it recently purchased XpressTrade for $37 million. Much like optionsXpress, the company has a retail focus, lots of educational tools, and a powerful browser-based system. "We think the futures market is at the same place options was five years ago," Kalt said. "We looked at a lot of companies and XpressTrade stood out. We have very similar corporate cultures."
XpressTrade is definitely a fast grower. In 2006, revenues increased 58% to $18.7 million and pre-tax income was up 68% to $7.8 million.
Takeaway
Since late October, optionsXpress' stock price has been under pressure, falling from $31 to around $23.41. But the company certainly has a big market opportunity, which it estimates at 3 million to 4 million customers. There is even more upside because of its move into futures.
In other words, the company has a lot of room for growth. And now it can focus on getting new customers.
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Fool contributor Tom Taulli does not own shares mentioned in this article. He is ranked 1,623 out of 19,864 players in Motley Fool CAPS. The Fool has a disclosure policy.
