TD Ameritrade Maintains High Trading Volumes Through February

Brokerage firm TD Ameritrade (NYSE:AMTD) is enjoying a sustained period for high trade volumes, as evidenced by its recent operating metrics for February. The company initially witnessed an increase in trading activity in the December quarter after sluggish volumes in mid-2014. Since the beginning of this year, Ameritrade’s trade volumes have improved further averaging over 485,000 trades per day, compared to 457,000 trades per day in the December quarter. Additionally, the company reported significant growth in net client assets both sequentially (+4%) and year over year (+14%) to almost $698 billion for February.

In its most recent earnings (Q1 FY 2015), Ameritrade reported a 9% year-over-year  growth in net revenues to $819 million, with growth in all its major revenue streams — commission and transaction fees (+9%) and asset-based and net interest revenues (+11%) — largely driven by an increase in trading activity and a gain in client assets complemented by rise in yield rates. Continuing the trend from the first fiscal quarter, Ameritrade’s trading metrics have improved through Q2’15 thus far. Below we take a look at some key metrics for Ameritrade and our forecasts for these metrics.

We have a $34 price estimate for Ameritrade’s stock, which is about 10% lower than the current market price. Ameritrade’s stock price has risen by over 15% since its Q1’15 earnings at the end of January.

See our full analysis for TD Ameritrade

Asset Base Continues To Grow

Ameritrade’s average client balances were 4% higher than the year-ago period at $19.4 billion for the month of February. ^[1] In the most recent quarter, the net yield on these assets rose, due to which revenues generated by interest on these balances grew by 26% year over year  to $161 million for the quarter. This was the fourth consecutive quarter of revenue growth of more than 25% in this division. The implied yield on these assets was over 40 basis points higher than the prior year quarter at 3.38%. We currently forecast the average yield for the current calendar year to be around 3.39% and resulting revenues to be 18% higher than the prior calendar year at about $725 million.

The other fast-growing revenue stream for Ameritrade last year was investment product fees, or the fees charged for its services on money market mutual funds and other funds. The brokerage’s average fee-based asset balance for 2014 stood at $142 billion — nearly 18% higher than the average balance in 2013. The average balance has further improved to over $155 billion through February.  Investment product fee revenues have witnessed double-digit year-over-year  growth in eight successive quarters, with a year-to-date average growth rate of over 20% on an annual basis. Going forward, we expect the company to continue to attract clients at similar rates through the end of this calendar year, which could lead to significant growth in investment product fee revenues.

High Trading Trading Activity Through February

Trading activity stayed high in February, continuing the trend from January, primarily due to the increased level of volatility in the market, especially derivatives trading. The average trades per day on Ameritrade’s platform in Q2’15 thus far (489,000 trades per day) have been 12% higher than the Q1’15 average of 438,000 trades per day. However, the average trades per day were about 2% lower than the comparable prior year period, mainly because of high trading activity in the year-ago period. ^[2] As a result, most brokerage firms including Ameritrade, E*Trade and Charles Schwab witnessed a year-over-year decline in trade volumes in January and February.

The total number of funded accounts at the brokerage stood at just under 6.4 million accounts at the end of December, about 5% higher than the year-ago period. ^[1] As a result, the number of trades per account in the quarter ended December stood at 6.6 trades per account for the quarter. If the number of trades per day stay at current levels, it could lead the average annualized trades per account to rise to about 19 trades per account for the full year. However, we have a conservative forecast for Ameritrade’s annualized trades per account at 18.5 trades per funded account for the calendar year 2015, since it is unlikely that high trading activity and high levels of volatility last for the full year.

Ameritrade management mentioned that the number of trades on the brokerage’s mobile platform in the most recent quarter accounted for 14% of total trades — up from just 3% of total trades back in 2010. In fiscal Q1 2015, the number of daily trades through the mobile platform rose by 28% year over year to over 5.7 million trades. The brokerage intends to focus on the mobile segment and enhance its user experience. With mobile trading on the rise, it is imperative for established large brokerages to provide mobile trading tools and capabilities to its customers as a safeguard against upcoming companies and zero-brokerage apps that are targeting this particular market segment.

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1. Ameritrade Monthly Metrics, Ameritrade Investor Relations, March 2015 [↩] [↩]
2. Discount brokers’ volumes rise as small investors pile into stocks, Reuters, March 2014 [↩]