Ameritrade (NYSE:AMTD) will report its first quarter fiscal year earnings on January 17th ahead of its competitors Charles Schwab (NYSE:SCHW) and E*Trade Financial (NASDAQ:ETFC). The last quarter of the calendar year generally sees lower trading volumes and so we expect Ameritrade’s earnings to be affected by this trend, in addition to rock bottom interest rates that continue to generate low returns on assets.
Our price estimate for Ameritrade is $22, which is 30% above the current market price.
Trading revenue may not help broker revenue in this quarter
The company gets more than 40% of its total revenue from trading and commission fees. Higher trading volumes in July – August 2011 boosted profits for online brokers and helped offset low interest rates. For the last quarter, we expect that revenues will suffer as a result of low trading volumes, which fell more than expected across the industry. 
The slowdown was mostly attributable to market volatility because of negative news coming from Europe, even though the U.S. economy showed some encouraging signs of a recovery.
Cost savings with high ad spending
We will also watch for the impact of the company’s initiatives to lower its expenses as revenues remain strained due to uncertain economic conditions and low interest rates. The broker earlier mentioned that it will continue to spend on marketing, even as it looks to reduce costs.
It will launch a new advertising campaign featuring Matt Damon who will be a voice for Ameritrade commercials for the next few years. Notes: