eTrade 2006 Annual Report Download - page 9

ITEM 1A. RISK FACTORS
Risks Relating to the Nature and Operation of Our Business
Many of our competitors have greater financial, technical, marketing and other resources
The financial services industry is highly competitive, with multiple industry participants competing for the
same customers. Many of our competitors have longer operating histories and greater resources than we do and
offer a wider range of financial products and services. The impact of competitors with greater name recognition,
market acceptance and larger customer bases could adversely affect our revenue growth and customer retention.
Our competitors may also be able to respond more quickly to new or changing opportunities and demands and
withstand changing market conditions better than we can. Competitors may conduct extensive promotional
activities, offering better terms, lower prices and/or different products and services or combinations of products
and services that could attract current E*TRADE customers and potentially result in price wars within the
industry. Some of our competitors may also benefit from established relationships among themselves or with
third parties enhancing their products and services.
Downturns or disruptions in the securities markets could reduce trade volumes and margin borrowing and
increase our dependence on our more active customers who receive lower pricing
Online investing services to the retail customer, including trading and margin lending, account for a
significant portion of our revenues. Although we continue to diversify our revenue sources, we expect online
investing services to continue to account for a significant portion of our revenues in the foreseeable future. A
downturn in or disruption to the securities markets may lead to changes in volume and price levels of securities
and futures transactions which may, in turn, result in lower trading volumes and margin lending. In particular, a
decrease in trading activity within our lower activity accounts would significantly impact revenues and increase
dependence on more active trading customers who receive more favorable pricing based on their trade volume. A
decrease in trading activity or securities prices would also typically be expected to result in a decrease in margin
borrowing, which would reduce the revenue that we generate from interest charged on margin borrowing. More
broadly, any reduction in overall transaction volumes would likely result in lower revenues and may harm our
operating results because many of our overhead costs are fixed.
We depend on payments from our subsidiaries
We depend on dividends, distributions and other payments from our subsidiaries to fund payments on our
obligations, including our debt obligations. Regulatory and other legal restrictions may limit our ability to
transfer funds to or from our subsidiaries. Many of our subsidiaries are subject to laws and regulations that
authorize regulatory bodies to block or reduce the flow of funds to us, or that prohibit such transfers altogether in
certain circumstances. These laws and regulations may hinder our ability to access funds that we may need to
make payments on our obligations.
We rely heavily on technology, and technology can be subject to interruption and instability
We rely on technology, particularly the Internet, to conduct much of our activity. Our technology operations
are vulnerable to disruptions from human error, natural disasters, power loss, computer viruses, spam attacks,
unauthorized access and other similar events. Disruptions to or instability of our technology or external
technology that allows our customers to use our products and services could harm our business and our
reputation. In addition, technology systems, whether they be our own proprietary systems or the systems of third
parties on whom we rely to conduct portions of our operations, are potentially vulnerable to security breaches
and unauthorized usage. An actual or perceived breach of the security of our technology could harm our business
and our reputation.
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