Investors in online brokerage stocks breathed a sigh of relief Thursday morning when ETrade Group announced better-than-expected results for its fourth quarter. The company earned a profit of $US7.2 million, or 2 cents a share, on an operating basis, better than the break-even results Wall Street analysts had expected.

Online brokerage stocks have had a rough ride for the last six months. The summer is usually slow for the market in general, but volumes began to lighten earlier than expected this year with the April market selloff. That E-Trade turned a profit during a particularly challenging quarter is a sign that the company's efforts to diversify its revenues and control costs are beginning to pay off.

During the last nine months, E-Trade has taken several steps toward expanding its business to offline channels. It has also stepped up efforts in shifting its focus from hyperactive trading to asset gathering. In September it opened E-Trade Zone, a walk-in store in a SuperTarget, which, if successful, will trigger the launch of similar zones in SuperTargets nationwide. It will offer professional financial advice electronically through a joint venture with Ernst & Young LLP and it will staff a three-story New York storefront with retail brokers beginning in January.

"We are no longer just an online brokerage company," said E-Trade CEO Christos Cotsakos during a conference call. "We are a broad and deep financial services provider and integrator."

E-Trade added 337,00 new accounts during the quarter, including 77,500 it acquired from Wit Capital Group Inc. as a part of its deal to merge E-Offering with Wit Capital. E-Trade brought in $US340 million in revenue during the quarter, a metric that also beat most analyst expectations.

The fourth and first quarters of the calendar year are historically strong ones for the brokerage industry, so analysts expect the industry is poised for a turnaround. And though this volatile market has generated a significant amount of skepticism around the viability of the e-brokerage model for the long term, Cotsakos emphasized his bullish outlook.

"This kind of market environment is when we do our best job," Cotsakos said. "I've always said that when times are tough are when the great franchises are reborn."

This month, Deutsche Bank AG made a deal to buy National Discount Brokers Group, a move that sparked the consolidation speculation in the brokerage industry yet again. Cotsakos acknowledged that it's true that both financial services firms and online players continue to explore options for mergers or partnerships. He said E-Trade has had "a revolving door" in recent months with other financial services firms moving in and out. He said that E-Trade would continue to evaluate its options, and that its primary areas of focus during those discussions are culture, technology and shareholder value.

Shareholders of E-Trade should be pleased today. After hitting new lows during the last several weeks, E-Trade stock was trading up more than 16 per cent Thursday morning, at $US13.13. Still, Cotsakos encouraged investors to focus on the company's development, not the falling stock price.

"It's a franchise that you buy, not a stock price," he said.