Despite some commission-cutting threats on the horizon, leading discount broker Charles Schwab (NASDAQ:SCHW) is doing just fine for now. This morning, the financial services specialist reported that earnings per share for the third quarter soared 31% to $0.21 on a 13% uptick in revenue.
The margins widened during the period, despite a series of price reductions and fee eliminations that went into effect at the start of the quarter. Yes, you can make trading cheaper for your customers and still grow the top and bottom lines. That is an encouraging sign, given some of the more recent developments in the industry.
Last week, upstart Zecco.com launched an online trading platform offering commission-free stock trades in two weeks. Discounters like Schwab, E*Trade (NYSE:ET), and Ameritrade (NASDAQ:AMTD) were slammed hard later in the week when Bank of America (NYSE:BAC) revealed that it would begin offering free trades through its retail brokerage division for those with at least $25,000 in assets at the bank.
We still don't know how these hubs of commission-free trading will fare. The last company to try it was Ameritrade's Freetrade. That ambitious offering was ultimately shelved in the spring of 2005. Zecco is still too young, and we don't know if other banks will follow Bank of America's lead on the retail front. That blurs the visibility on Schwab, but at least it's being aggressive enough to keep its customers close with competitive rates. That is important because even if trading revenue now accounts for just 13% of the revenue pie at Schwab, that diversity wouldn't be possible if Schwab couldn't market other features and services to its massive client base as it watches over more than $1.3 trillion in net assets.
For now, the investors keep coming. The company attracted 137,000 new brokerage accounts during the quarter. It drew $21 billion in net new assets. That's just what shareholders in this Motley Fool Stock Advisor recommendation want to hear.
There will always be cheaper alternatives. The next few quarters bear watching even if you're a long-term investor -- just in case the industry's dynamics are changing. However, Schwab pioneered the discounter movement. Something tells me that it's packing plenty in its survival kit to make sure it rolls with any of the sector's changes to keep assets growing.
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Longtime Fool contributor Rick Munarriz has been trading exclusively through discount brokers since 1990, but he does not own 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.
