Every quarter StockBrokers.com looks at the quarterly earnings reports from the publicly-traded online brokers. With the second quarter earnings season now complete for this sector, it’s time to look at our full quarterly earnings review. 2013 was a great year for the online brokers, and the first quarter of 2014 was even better. How did the second quarter turn out? We’ll take a look at some fast facts from each broker’s results, and then examine what it means for the sector overall. Here’s a look at results from Charles Schwab (SCHW), E*TRADE (ETFC), TD Ameritrade (AMTD), and Interactive Brokers (IBKR).
Let’s first take a brief look at how each of the brokers did compared to the same period a year ago. Schwab reported earnings of 23 cents versus 18 cents a year ago. E*TRADE reported a profit of 24 cents per share versus a loss of 19 cents in the same quarter last year (due to one-time losses). TD Ameritrade earned 34 cents per share compared to 33 cents per share last year. Interactive Brokers earned 26 cents per share compared to 21 cents per share in the previous year.
Charles Schwab 2014 2nd Quarter Earnings Fast Facts:
Schwab’s profit margin came in at 35.3%, which was the company’s highest since 2008
Revenue was up by 11 percent from the same quarter a year ago
Total client assets reached a record $2.40 trillion
Schwab gathered $11.5 billion in net new assets in June, which was the highest ever in that month
Schwab beat analysts estimates by a penny on the bottom line and their revenue came in fractionally higher than analysts expected. The company actually reported a slight drop in Daily Average Revenue Trades (DARTs), but they were able to overcome that drop thanks to their wider approach. Schwab has been doing a great job gathering assets in 2014. The high profit margin number was encouraging to analysts who follow this stock. Schwab’s shift to focusing on full-service capabilities and advisory services seems to have worked very well for the company.
E*TRADE 2014 2nd Quarter Earnings Fast Facts:
E*TRADE reported DARTs of 155,000 which was four percent higher than a year ago
Provision for loan losses dropped 74 percent from last year
Net new brokerage accounts in the second quarter increased by 33,005
E*TRADE now has 4.7 million customer accounts in all, including 3.1 million brokerage accounts
E*TRADE’s quarterly earnings of 24 cents beat analysts estimates by a penny, but they came up far short of first quarter earnings of 33 cents per share. E*TRADE beat analysts revenue estimates with a $438 million total revenue number for the second quarter, but that was just short of last year’s $440 million in total revenue. The company has already surpassed last year’s number of net new brokerage accounts. DARTs were up four percent from last year, but they were down 22 percent from the first quarter. The drop in trading volume is to blame for E*TRADE’s earnings not being able to keep up with the blistering pace from the first quarter.
TD Ameritrade 2014 2nd Quarter Earnings Fast Facts:
Profits rose by three percent from last year while revenue increased by 4.4 percent
New assets rose by 24 percent to $13.4 billion
DARTs came in at 401,000, which was almost exactly the same as last year’s 399,000 DARTs in this quarter
Client assets now sit at a record $650 billion
This was the single best quarter in Ameritrade’s history when it comes to new assets. DARTs were flat from last year, but down significantly from the 492,000 reported in the first quarter. Ameritrade also said DARTs are just 396,000 thus far in the month of July. Ameritrade executives said this is merely summer seasonality on the conference call, and they are encouraged by investors continued bullishness. Investment product fees now account for ten percent of TD Ameritrade’s revenues. The boost in asset gathering at Ameritrade is certainly encouraging.
Interactive Brokers 2014 2nd Quarter Earnings Fast Facts:
Customer accounts grew 17 percent to 262,000
Profit margin jumped to 56 percent from 47 percent a year ago
The market making segment of the company earned $47 million compared to $50 million last year
DARTs rose by five percent from a year ago to a level of 529,000
Interactive Brokers missed analysts estimates of 29 cents per share and reported 26 cents per share. Still, that is a significant improvement from last year’s 21 cent per share figure. Net revenue rose 8.9 percent from last year. Non-interest expenses were down 9.9 percent in the quarter. The electronic brokerage segment saw income rise by seven percent in the quarter. Commission and execution fees dropped ten percent largely due to lower volumes in foreign exchanges and futures markets.
Overall, online brokers did better than the same period a year ago, but growth definitely slowed down compared to recent quarters. While this might be a bit concerning, it is important to remember that this is generally a relatively slow period for the stock market. Brokers reporting DARTs that were much lower than the first quarter should come as no surprise. Keep a close eye on DARTs in the third quarter. July and August are generally slow months, but the online brokers need to see investors return to action as September arrives. All of the online brokers have done a nice job gathering assets so far this year, and that is a big positive for future earnings at these companies. Everyone in the industry is starting to realize that they need to broaden their spectrum a bit and be less dependent on trading revenue.
Earnings growth wasn’t as robust as the first quarter, but the needle is still moving in the right direction for this sector. Below is a yearly chart of all four of the brokers.