Transition Year at thinkorswim Group Inc.

* We feel the education contribution is likely to curtail rapidly in the second half of 2008 and 2009. By 2009, we expect only one-third of revenue contribution to come from education, while two-thirds is contributed by brokerage, at higher margins.

* This acceleration of the mix change and moderation of education’s contribution is due to the significant decrease in the price point of the education foundation course, from $999 to $299 and a near-term shift, we expect, to more online web courses, from seminars. This has the direct effect of significantly and rapidly reducing deferred revenue from education down to an estimated zero in 2009.

* While we view the new model as a more profitable, healthier economic model for the future, clearly 2009 will be a transition year in which we estimate EPS will be flat to slightly higher with 2008 but the composition of that EPS contribution will be nearly 90%-95% from brokerage as education essentially breaks even to contributing slightly.

* We have reduced our revenue and EPS for 3Q08 and 4Q08 to $92.97 million and $0.24 and $94.154 million and $0.24, from $98.97 million and $0.27 and $103.67 million and $0.28, respectively. For 2008, our revenue and EPS estimates are now $375.11 million and $0.92 from $391 million and $0.99.

* For 2009 the change is greater because of the zero contribution from education deferred revenue, the full year effects of a $299 price point in the foundation course, and a rise in the tax rate from an estimated 27% in 2008 to 39%. Pretax income is estimated to rise from $86.5 million in 2008 to $104.84 million in 2009 on the higher margin brokerage business contribution.

* We have lowered our 12-month price target to $15.00 from $16.00, which is calculated at 16.3x our new EPS estimate for 2009, in line with longer-term earnings growth rate expectations, given that we believe SWIM is gaining market share in the online brokerage business and, specifically in the derivatives trading segment.

* The reason for our change in estimates is related to our new calculations on the accelerated rate of deferred revenue declines in the education segment as a result of the change in the price point. By 2009 we believe there will be zero contribution from deferred revenue in this segment, and with it, the elimination of sales transaction volume (STV) metrics. We are not anticipating any growth in the education segment for 2009, given the lower price point. We are also lowering our estimate of upsells in the mix to 30% from 40% currently.

* We do, however, think the P/E should expand over time as SWIM becomes more widely known as an online brokerage company, and its operating leverage, driven by volume increases, drives margins.