Retail brokerage firm TD Ameritrade (NYSE:AMTD) is scheduled to release its quarterly results on Tuesday, April 16. Last quarter, the company reported net income of $147 million, which was down 3% y-o-y. Yet the markets welcomed the results as the company had been able to reduce the y-o-y declines over the past few quarters.
Since the start of this year, Ameritrade’s stock has increased nearly 20%, and its shares currently trade at around $20, almost in-line with our estimates. Going forward, we expect the company to continue attracting client assets on a net basis as we have seen across the brokerages. However, the pace of asset gathering is likely to be lower than the previous quarter in which the firm attracted a record amount of new assets on a net basis. We remain cautious about the firm’s daily average trading volumes given the slower than hoped for recovery across the industry.
Trading Volumes Remain Low
According to our estimates, around 40% of Ameritrade’s revenues are commission-based and trading commissions account for nearly 30% of the value in the company’s stock. This makes trading volumes a very important operating metric for the company.
Unfortunately, however, trading volumes have remained low for the past several quarters, and the company’s revenues from this division have suffered as a result. Ameritrade’s transaction-based revenues declined by nearly 6% y-o-y to $257 million in the quarter ended December 31.
Going forward, it will be important to see how trading volumes trend. Volumes have shown some signs of revival throughout the industry in early 2013, but it is too early to say whether this trend will persist.
Note that Ameritrade’s average daily trading levels seem to be impacted by investor sentiments much more than competitors like Charles Schwab (NYSE:SCHW). For example, Ameritrade’s average daily client trades increased by 17% y-o-y in January when there was a market-wide uptick in trading activity. For Schwab, the increase in trading levels for that month was only 8% y-o-y. 
Asset Gathering And New Account Opening Is Strong
Fiscal year 2012 was the fourth consecutive year when Ameritrade recorded a double digit asset growth rate, and the momentum continued in the first quarter of 2013 (quarter ended December 31). During this quarter, the company attracted a record $16 billion in net new client assets at an annualized growth rate of 13%, thanks to a window of opportunity in which customers brought forward their incomes to save capital gains taxes and invested the money at brokerages and banks.
Ameritrade also opened around 174,000 new brokerage accounts, up by an impressive 24% y-o-y, by offering deep discounts and cash bonuses to potential customers. You can read more about this strategy here.
For the quarter ended March 31, we expect Ameritrade to again report a net increment in client assets. However, the number is likely to be lower than the record set in December because the window of opportunity for customers to save on capital gains taxes has already closed. It will also be interesting to see if the company can maintain its pace of new account openings going forward.
We will revise our price estimate for the company after the company releases its quarterly results.Notes: