Breaking Down the Brokers

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Going over this morning's earnings report from TD AMERITRADE (Nasdaq: AMTD  ) is a lot like browsing through rival Charles Schwab's (Nasdaq: SCHW  ) numbers from last week. Revenue and profits fell both sequentially and year over year, yet the discount brokers continue to draw larger investing audiences.

Yes, the $0.23 per share in profits and the $525.5 million in net income that TD AMERITRADE scored during its fiscal second quarter is less than the $0.31 a share it rang up on $622.9 million in revenue a year ago. But that isn't the point. Wall Street was expecting a profit of $0.23 a share on $512.3 million, so the company exceeded top-line projections and hit its bottom-line landing. Schwab, too, finished ahead of analyst guesstimates last week.

TD AMERITRADE closed out the quarter with $6.4 billion in net new assets. Yes, it took bigger steps during this year's first quarter -- and last year's fiscal second quarter -- but that also isn't the point. The discounter keeps taking steps in the right direction.

Fresh inflows are essential, since the bruising market over the past year has eaten into the total assets that TD AMERITRADE is watching over. If the market keeps rallying, this is a metric that will naturally improve nicely.

There were 5.1 million funded accounts at the broker at the end of last month, as well as $224.9 billion in assets. Of that amount, $53 billion is in cash and money market funds, and the pile will get even bigger, after the company completes its purchase of thinkorswim Group (Nasdaq: SWIM  ) . That move will double the company's exposure in the options-trading niche, where companies such as optionsXpress (Nasdaq: OXPS  ) are thriving, given the market's volatility.

We're talking about a lot of money, and it shows just how popular discounters such as TD AMERITRADE, Schwab, and E*Trade (Nasdaq: ETFC  ) have become in recent years. Independent research through sites such as Morningstar (Nasdaq: MORN  ) , (Nasdaq: TSCM  ) , and here at have helped inspire investors to take control of their finances. Skirting hefty commissions, loads, and fees makes sense for window-shopping investors

So don't get bent out of shape with headlines proclaiming that TD AMERITRADE -- like Schwab last week -- is in a state of decline. The top and bottom lines may suggest as such, but the seeds for growth are being planted.

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Morningstar, optionsXpress Holdings, and Charles Schwab are Motley Fool Stock Advisor picks. The Fool owns shares of Morningstar. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz has been trading exclusively through discount brokers since 1990, but owns no shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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  • Report this Comment On April 21, 2009, at 4:32 PM, mgdassets wrote:


    Please clarify, TD earnings in your article: Net Income v. Revenue. You seem to have an error. TD had $525MM in revenue not net income for the quarter, yes?



  • Report this Comment On April 21, 2009, at 6:58 PM, TMFBreakerRick wrote:

    David, yes. It should have read revenue and not net income, naturally.

    Sorry about that.

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