Improvement In Trading Volumes And Rate Hike Likely Drive Ameritrade’s Quarterly Revenues

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AMTD IDEA Group

TD Ameritrade (NASDAQ: AMTD) is scheduled to announce first-quarter earnings on Wednesday, January 18th. (Fiscal years end with September.) The company’s revenues grew by about 5% in the first nine months of 2016, and the consensus estimates peg fourth-quarter growth in the similar range. The year ended on a positive note for the brokerages with increased volatility in the stock market resulting from the recently concluded U.S. presidential elections and improved macro factors such as GDP and employment rate. Additionally, we expect the recent interest rate hike by the Fed to have a positive impact on the brokerage’s interest earning assets.

Fed’s Guidance Continues To Boost Interest Earning Revenues

Interest earning assets, which generate about 45% of the company’s revenues, have shown 12% growth in the year-to-date period until November. The previous rate hike in December 2015 had led to a massive surge in assets and 20 basis points growth in yields on these assets. We believe the growth momentum spilled over in December as well, due to the 25 basis point rate hike announcement.

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Trading Volumes To Grow Due To Improving Market Conditions

The first three quarters of 2016 did not see much growth in trading commissions, which can be attributed to decreased volatility in the market and increased competition from discount brokerages. However, the trading volumes surged by 23% in November. We expect a similar growth in December because of the highly volatile market conditions resulting from the presidential election results and improvement in the U.S. economy. Consequently, trading commissions, which contribute around 40% to the company’s overall revenues, are expected to have gone up.

Increased Demand For Tech-Advanced Financial Expertise Propel Growth In Assets Under Management

Assets under management are benefiting from customer demand for expert financial advice to manage their assets. The digital advisory business and the company’s focus on newer investment products to meet customer demand have led to 5% year to date growth in asset volumes. Consequently, we expect higher investment product fees in this quarter. 

Please refer to our complete analysis for Ameritrade.

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