TD Ameritrade Beats on Earnings, Revs - Analyst Blog

TD Ameritrade Holding Corporation AMTD reported yet another strong quarter as its fiscal second-quarter 2014 earnings of 35 cents per share beat the Zacks Consensus Estimate by a penny. The reported figure also came above the prior-year quarter earnings of 26 cents.

Impressive results followed increased revenues. Further, the quarter continued to witness a rise in both total client assets and daily average client trades. Higher expenses were on the downside.

TD Ameritrade's net income for the quarter was $194 million, up 34.7% from the prior-year quarter.

Quarter in Detail

Net revenue came in at $812.0 million, surpassing the Zacks Consensus Estimate of $786.0 million. Further, the reported figure rose 19.6% year over year, reflecting an increase in both total asset-based revenues and transaction-based revenues.

Average client trades per day in the quarter increased 30.1% year over year to 491,963. However, net new client assets were $12.2 billion, down 5.4% from the prior-year quarter.

At quarter end, TD Ameritrade reported total client assets worth $617.1 billion, up 19.4% year over year. Moreover, average spread-based balance was $91.5 billion, up 10.8% from $82.6 billion in the prior-year quarter. Average fee-based investment balance was $133.6 billion, up 20.5% year over year.

Net interest revenue was $127.0 million, up 28.1% year over year.

Operating income increased 36.3% from the year-earlier quarter to $323.0 million. The rise was due to increased revenues, partly offset by higher expenses. Net interest margin NIM was 1.45%, in line with the prior-year quarter.

Total operating expense rose 10.6% year over year to $489.0 million. This was mainly due to an increase in employee compensation and benefits expenses, clearing and execution costs, depreciation and amortization as well as advertising expenses.

Balance Sheet

As of Mar 31, 2014, TD Ameritrade's cash and cash equivalents were $0.9 billion, compared with $1.1 billion as of Sep 30, 2013. Shareholders' equity was $4.7 billion, in line with the figure as of Sep 30, 2013.

Our Viewpoint

Innovations in online trading, long-term investment in products and services, delivery of advanced customer service and creative marketing and sales are TD Ameritrade's key strategies to boost its trading and investing business. Further, we believe the company will benefit from the renewed interest of retail investors in the equity market.

Additionally, the company's association with The Toronto-Dominion Bank TD provides an opportunity to cross-sell its products. This is expected to be a significant growth driver for TD Ameritrade's organic assets.

Amid a volatile operating environment, TD Ameritrade witnessed continuous rise in both organic client assets and trading volumes, which bode well going forward. However, we remain cautious as a continuous rise in expenses, a low interest rate environment and stringent regulations may weigh on the company's financials in the upcoming quarters.

At present, TD Ameritrade carries a Zacks Rank #2 (Buy).

Performance of Other Investment Brokers

Interactive Brokers Group, Inc.'s IBKR first-quarter 2014 adjusted earnings per share of 34 cents surpassed the Zacks Consensus Estimate of 29 cents. Better-than-expected results were mainly due to appreciable growth in revenues, partially offset by a slight rise in expenses. Results were also aided by solid performance in both the Electronic Brokerage and Market Making segments.

The Charles Schwab Corp.'s SCHW first-quarter 2014 earnings of 24 cents per share beat the Zacks Consensus Estimate of 22 cents. Results benefited from strong revenue growth and prudent expense management, partially offset by a decline in benefits from provisions.