E*Trade dips on plans for $500 million bond offering

Shares of E*Trade fell more than 4 percent in early trading after the online brokerage firm today said it planned to raise about $500 million by offering bonds that may be converted into common stock in three years.

The company said it expects to use about $150 million of the net proceeds to refinance its current debt, with the remaining $350 million pegged for general corporate purposes, including financing future growth.

The company has been on a tear throughout the past year, making major acquisitions and expanding its services overseas. Just today, the online brokerage firm announced it had teamed with Nippon Telegraph & Telephone, one of Japan's largest telecommunications companies, to make an undisclosed investment in optical networking start-up Mayan Networks.

E*Trade stock has been in the dumps for some time now, weighed down by continued heavy marketing costs. The company has reported losses for the past five quarters.

E*Trade stock fell $1, or roughly 4 percent, to $ 22.31 in early afternoon trading. The stock hit a high of $72.25 and a low of $17.75 during the past 52 weeks.

Amar Mehta, an analyst at CIBC World Markets, said it is understandable why E*Trade veered away from trying to raise funds through a secondary stock offering.

"The equities market would not be receptive to a (secondary offering)," Mehta said. "(The bond offering) is clearly a sign that these guys need money with the rate at which they are spending on advertising."

Nevertheless, E*Trade's sales and marketing costs continue to rise. The company disclosed in its earnings statement that it spent an average of $289 on sales and marketing per new account compared with $198 per new account in the previous quarter.

Mehta added that E*Trade needs to attract higher assets per account. "Once they gain more assets, it will reflect that they have other products and services that they can cross-sell, attracting more profitable accounts," Mehta said.

E*Trade is sponsoring the halftime show during Sunday's Super Bowl for an undisclosed cost.