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Q3 Earnings Picks: Highlights From TD Ameritrade’s Disappointing Earnings Report

October 30, 2012
Investing, Investments
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TD Ameritrade is the second largest online brokerage firm in the U.S., with approximately 6 million clients. Because of Hurricane Sandy, they decided to publish their quarterly earnings statement a few days early, and will be holding the conference call on November 5.

NerdWallet rummaged through the spreadsheets to bring you some key facts about TD Ameritrade’s performance this quarter.

Revenue

Revenue from commissions and transaction fees (essentially, what you’re charged for placing a trade) is down 19% from the same quarter last year. Q3 2011 saw $315 million in revenue from commissions in comparison to $256 million in Q3 2012. This is due to the significant decrease in client trading activity.

As you can see below, client trading activity is steadily decreasing as investors make fewer, larger trades:

Net revenue was similarly decreased by $57 million from the same period last year ($647 million as compared to $704 million).

Expenses and Growth

Overall, TD Ameritrade managed to lower their operating expenses  for Q3 2012 by $37 million in comparison to Q3 2011. However, they seem to be primarily lowering spending in areas that benefit the customers and employees. For example,  clearing and execution costs are down by $5 million, and compensation and benefits are down by $7 million.

On the other hand, spending has increased in areas such as communications ($3 million) and advertising ($9 million). To TD Ameritrade’s credit, 190,000 new accounts were opened in Q3 2012 as opposed to 150,000 in Q3 2011. However, the number of funded accounts only increased by 28,000. There are three possible reasons for this result: most people simply don’t fund their account, many people have delayed funding their account for some reason, a significant number of clients have left TD Ameritrade. Or it could simply be some combination of these three scenarios. What we do know is that unfunded accounts hold no value for a brokerage firm.

Income and Earnings

The net income for Q3 2012 was $143 million, which translates to an earning per-share of $0.26. These figures down from Q3 2011, in which the net income was $164 million, with an EPS of $0.29.

Giving Back to Investors

This quarter, TD Ameritrade repurchased 1.8 million shares of its stock from investors for approximately $29.5 million in total. In addition, they distributed $33 million in dividends to shareholders. This came to $0.06 per share, up twenty percent from Q3 2011.

Key Takeaways

TD Ameritrade is pouring more money into acquiring new clients, and is quite adept in that area. However, the decrease in trade volume has been quite significant, and is counteracting all decreases in spending. We can’t be entirely sure of why trade volume has decreased, whether it’s because of the public’s perception of the economy, or because of TD Ameritrade’s high commissions. No matter the reason, TD Ameritrade is already the second largest online brokerage in the U.S., and may need to emphasize assisting current clients before hoarding new ones.

 

Notes

In order to be consistent when speaking about the given time period, NerdWallet uses “Q3 2012” to refer to the quarter ending September 30, 2012. TD Ameritrade’s fiscal year 2012 runs from October 1, 2011 through September 30, 2012.