All of the online brokers have reported their earnings for the first quarter of 2017. StockBrokers.com takes a look back at the earnings reports from each of the publicly-traded brokers every quarter. The online brokerage sector had a solid 2016. How did things get started in 2017? We’ll take a look at fast facts as well as an overall look at each company’s results. We’ll 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), TD Ameritrade (AMTD), E*TRADE (ETFC) , and Interactive Brokers (IBKR).
Before we look at each individual report, let’s take a look at how each of the brokerages did on an earnings per share basis compared to the same period in 2016. Charles Schwab reported 39 cents per share in profits, up 34 percent from the same period a year ago. TD Ameritrade brought in 40 cents per share, up a bit from 38 cents per share last year. E*TRADE reported earnings per share of 48 cents per share, which was down from 53 cents per share a year ago. Interactive Brokers earned 34 cents per share in the quarter, which was down from 51 cents per share last year.
The price war going on in the industry with brokers slashing commissions is something we’ll keep a very close eye on. Let’s see how it impacted earnings in the quarter.
Charles Schwab First Quarter Earnings Fast Facts
Easily beat estimates of 36 cents per share by bringing in 39 cents per share
Total new accounts set a new quarterly record at 362,000 in the quarter
Revenue jumped 18 percent to $2.08 billion
Net interest revenue rose by 30 percent from a year ago
Charles Schwab reported very strong first quarter results. Schwab brought in record net income of $564 million in the quarter. Schwab reported net new assets that were up 22 percent from a year ago. Schwab continued to have success in its advisory service areas as well. The company reported having planning conversations with 38,000 clients in the quarter, which was 12 percent more than a year ago. New retail brokerage accounts grew a whopping 44 percent in the quarter.
Trading revenue declined 17 percent to $192 million after Schwab slashed commissions to $4.95 per trade late in February. Higher interest rates helped interest revenue jump 30 percent in the quarter.
TD Ameritrade First Quarter Earnings Fast Facts
Missed first quarter analysts estimates by a penny on the bottom line
Revenues came in well above analysts estimates at $904 million
Total operating expenses jumped 8.5 percent in the quarter
Daily Average Revenue Trades (DARTs) edged up 2 percent from a year ago
TD Ameritrade missed on the bottom line, but overall this was another solid report for the online broker. Revenues came in about $20 million higher than estimates. Client assets reached $847 million, which was a new record for the company. DARTs came in at 517,000, which is a good number considering the low volatility the market has seen in recent months. Operating expenses jumped in part because of Scottrade-related expenses with the merger. The merger expenses totaled $8 million in the quarter. Interest rate sensitive asset balances rose 11 percent from a year ago thanks to the higher federal funds rate. Looking forward, TD Ameritrade spoke of reduced trading fees lowering their profit, but they believe the benefits of higher interest rates will more than offset that for their bottom line.
E*TRADE First Quarter Earnings Fast Facts
E*TRADE bested analysts estimates on the bottom line by 9 cents per share
Revenues of $553 million came in $21 million above expectations
Non-interest expenses rose 9.6 percent in the quarter
DARTs surged 25.5 percent year over year
It was a really good quarter for E*TRADE. The online broker reported a very strong DARTs number that really opened a lot of eyes on Wall Street. Analysts estimates were blown away on both the top and bottom line. Total customer assets were up 18.7 percent from a year ago. E*TRADE lowered its balance sheet risk again this quarter as they have been on a quarterly basis for quite some time. Net interest income rose 11.1 percent from last year. Non-interest income jumped 26.5 percent. E*TRADE announced net new brokerage accounts of 58,000. That is an annualized growth rate of 6.7 percent. Total customer assets sit at $336 billion.
Interactive Brokers First Quarter Earnings Fast Facts
Revenue came in just below analysts estimates at $374 million
Total DARTs were down 12 percent from a year ago to 657,000
Market-making segment showed a pre-tax loss of $22 million
Earnings per share missed analysts estimates by 5 cents
Interactive Brokers is probably the most volatile earnings report of the publicly-traded brokers. Interactive Brokers disappointed compared to expectations in the first quarter this time around. Interactive Brokers missed on the top and bottom line. They also reported pre-tax profit margins that dropped from 69 percent to 57 percent. The market-making segment saw revenues plunge 86 percent to $8 million. It wasn’t only the market-making segment that disappointed though. Interactive Brokers electronic brokerage division saw revenue drop ten percent. The brokerage segment of the business also reported a disappointing DARTs number. Management announced plans to discontinue its options market making activities. Phasing out those operations are expected to cost $25 million as a one-time restructuring cost.
This was a mixed quarter for the brokers. If you looked at one broker you might think the sector is doing really well. If you looked at another broker, you would probably think the sector is struggling right now. There are some company specific trends going on in this sector. DARTs were very mixed, and it will be interesting to keep an eye on those moving forward. Higher interest rates have already helped some, and they will clearly help even more in the next few quarters.
The biggest question is what happens to profits following the large drop in commission fees? These brokers will have to find alternative ways to make money. They’ll still make some from trading fees, but it will be a much smaller percentage of their earnings. The brokers who are better diversified when it comes to revenue streams should outperform the sector as a whole when it comes to earnings in the next few quarters.
Below is a yearly chart of all four of the brokers. The charts are as of the close of trading on April 25.