Ameritrade’s (NYSE:AMTD) earnings for the three months ending September remained suppressed due to continued low trading activity. Net revenues were down 8% from the same period in 2011 at $647 million while transaction-based revenues fell 19%. There were some positive signs for the company, particularly from its ability to attract client assets. Ameritrade reported $10 billion in net new client assets added in the last quarter.
We will shortly update our model to reflect the results of the latest earnings report. Our current $18 price estimate for Ameritrade’s stock is at a premium of 10% to the market price.
Positive Signs From Mobile And Derivatives
Although total trades executed via Ameritrade were down 23%, the average commission and transaction fees earned by the company per trade went up from $11.85 in 2011 to $12.47. This improvement was due to increased options trading activity. Options trades accounted for 26% of the brokerage’s overall daily average revenue trades (DARTs) in 2011, but have now increased to over 31%. Mobile trading was another plus point for the company, trades executed via mobile applications accounted for 8% of Ameritrade’s DARTs in the quarter and it reported an average of 1,800 new users per day, an increase of 32% over the prior year.
The number of funded accounts grew from 5.6 million at the end of the September quarter last year to 5.7 million as the company was able to retain most of its clients.
We expect trading activity to remain suppressed with derivatives trading mitigating some of the effect of declining equity trades over the next couple of years. A long-term global economic recovery will lead to a recovery in trading volume.
Ameritrade has maintained a double digit growth rate in client assets through the last few years and ended the fiscal year (ending September) with an annualized growth rate of 11%. The September quarter showed some signs of a slowdown as the growth rate during the three months averaged out to 9% while in the same period last year, the growth rate was 12%. Interest earning assets fell from an average of $15.2 billion in the June quarter to $14.8 billion. This figure still represents an increase of 10% over last year’s September quarter. Management has projected a growth rate of 7% to 11% for the next year, and we concur with its view.
You can gauge the effect of a change in the forecast by modifying the interactive chart below.