All of the online brokers have reported third quarter earnings for 2016. Every quarter, StockBrokers.com examines the earnings reports from all four of the publicly-traded brokers. The past year has been a fairly good one for the industry in general. Could the brokers keep producing good earnings results in the third quarter? We’ll take a look at fast facts and an overall look at each company’s results. We will then close by summarizing what these reports mean for the online brokerage sector as a whole. Here is a look at the results from Charles Schwab (SCHW), Interactive Brokers (IBKR), E*TRADE (ETFC), and TD Ameritrade (AMTD).
Before we break down each individual report, let’s look at how the brokerages did on an earnings per share basis compared to the third quarter in 2015. Charles Schwab reported 35 cents per share in the third quarter compared to only 28 cents per share in the same period last year. Interactive Brokers reported earnings of 30 cents per share, which was five cents lower than last year’s 35 cents brought in during the third quarter. E*TRADE reported a profit of 51 cents per share on the bottom line compared to only 33 cents per share last year. TD Ameritrade reported 35 cents per share compared to 40 cents per share in third quarter last year.
Charles Schwab Third Quarter Earnings Fast Facts
Schwab’s net income rose 34 percent compared to the same quarter last year
Schwab bested analysts estimates on the bottom line by two cents per share
Schwab added $30 billion of net core assets in the quarter
Schwab reported a pre-tax profit margin of 41.5 percent, up from 36.5 percent a year ago
Charles Schwab bested analysts estimates on the bottom line by two cents per share. They also beat analysts estimates for $1.88 billion in revenue by reporting $1.914 billion in revenues. Schwab had 10.0 million brokerage accounts and 1.1 million bank accounts as of the end of the third quarter. Total client assets reached a record $2.73 trillion, which is up 13 percent year-over-year. The 41.5 percent pre-tax profit margin is an all-time record for Schwab. Asset management and administration fees were a record $798 million, up 20 percent from a year ago.
Interactive Brokers Third Quarter Earnings Fast Facts
Interactive Brokers missed analysts estimates by two cents per share
Total net revenue dropped four percent from a year ago
Pre-tax profit margin was 53 percent compared to 56 percent a year ago
Total DARTs decreased by 11 percent from a year ago to 609,000
Interactive Brokers disappointed in the third quarter, largely due to the decrease in trading activity. This company is more highly leveraged to trading activity than most brokers. The electronic brokerage segment of the business saw revenue drop four percent from a year ago. The market making segment of the company saw net revenue plunge by 52.2 percent year-over-year to $43 million. Pre-tax income dropped by a whopping 85 percent to $7 million. Interactive Brokers did improve their capital position in the quarter. Cash and cash equivalents totaled $26.8 billion at the end of the quarter.
E*TRADE Third Quarter Earnings Fast Facts
E*TRADE beat analysts estimates by a whopping 11 cents on the bottom line
Net new brokerage accounts totaled 162,000 (148,000 of which were from the OptionsHouse acquisition)
Total DARTs decreased by 3 percent year-over-year to 151,905
Total non-interest expenses dropped 3 percent to $323 million
E*TRADE reported a huge earnings surprise to the upside in the third quarter. E*TRADE was able to reduce expenses and get some solid growth when it comes to total assets. Total customer assets are up 11 percent from a year ago. Net interest margin rose from 2.47 percent to 2.59 percent in the quarter. Note that the Total DARTs number of 151,905 includes 6,500 DARTs from the company’s OptionHouse acquisition. On that front, E*TRADE executives and analysts have mentioned in recent days that they believe the OptionsHouse acquisition is going extremely well thus far.
TD Ameritrade Third Quarter Earnings Fast Facts
TD Ameritrade bottom line missed estimates by 3 cents
Revenue came in at $829 million, which was about $7 million short of analysts estimates
Total operating expenses jumped 15.9 percent compared to last year
DARTs decreased 7.2 percent to 444,281 in the quarter
TD Ameritrade reported third quarter earnings that were a disappointment to Wall Street. Higher expenses and lower trading activity were two key reasons. Commissions and transaction fees decreased 7.7 percent from last year. Net new client assets were $15.1 billion, which is down 6.8 percent from a year ago. However, total client assets came in at $773.8 billion, up a very solid 15.9 percent from last year. Concurrent with the earnings release, TD Ameritrade announced their $4 billion acquisition of Scottrade. StockBrokers.com posted about this merger on Monday.
It was a mixed quarter for the online brokers. Overall, trading activity was down and that certainly hurt everyone to some degree. Some of the brokers are more closely tied to a rise or fall in trading than others, and we see that in the results above. It is important to note that we noted the second quarter was only solid from a trading activity perspective because of the spike in activity following the Brexit vote. There was no such catalyst this quarter, and the slowdown was very evident. Customers continue to open new accounts at a high rate, and that’s encouraging for the industry. The positive performance of the stock market has obviously helped the sector as well. StockBrokers.com will be back in three months with a report on earnings for the fourth quarter of 2016.
Below is a yearly chart of all four of the online brokers. The charts are as of the close of the trading day on October 25.