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TD Ameritrade Earnings Miss – How to Survive in an Industry Disrupted by Robinhood?

TD Ameritrade (NASDAQ: AMTD) announced their earnings for Q1 2020, missing EPS expectations. The company reported an EPS of $0.74 which is 3.89% below analysts expectations of $0.77.

Revenue reported for this quarter was $$1.30 which is 0.2% above analysts expectations of $1.29 billion.

The newly combined Schwab-Ameritrade alliance will be a formidable alliance for Robinhood to fight off.

The stock has had a wild ride in the market this past year. Back in October of 2019, Charles Schwab, a major competitor of TD Ameritrade, announced that they were cutting commission fees on their stock trading platform down to $0, citing increased competition from apps such as Robinhood, which does not charge commission fees and have disrupted the stock brokerage business in the United States. The fallout of this announcement saw TD Ameritrade do the same.

TD Ameritrade, whose commission fees make up about 25% of their revenue at the time, saw their stock crash for more than 25% in a single day. The main reason why eliminating commission fees caused such a massive crash in the stock is because commission fees have a very high margin, and almost all of it would have made it down to the bottom line which would now be much smaller without them.

Since then, however, the stock has recovered back to its previous levels due to the announcement that Charles Schwab has agreed to buy out TD Ameritrade in a deal valued at $26 billion. The newly combined Schwab-Ameritrade alliance will be a formidable alliance for Robinhood to fight off. The deal is expected to close sometime in the second half of 2020.

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U.S. Stock Brokerage Industry Can be Described with One Word: Choice

Besides the brokerage apps, there are also many other choices for the U.S. retail investor, discount brokerages like E-trade or Ally Invest have been offering low commission fees for years, and now they are also switching to a commission-free model. The trend among the younger millennial generation seems to be geared towards apps such as Robinhood and Webull while seasoned traders and investors still prefer traditional brokers like Charles Schwab and TD Ameritrade.

TD Ameritrade’s Valuation Against Its Peers

TD Ameritrade ranks somewhere in the middle in terms of forward P/E compared to some of its peers. Although it is worth noting that companies like Ally mainly rely on their core business as a bank rather than as a brokerage to generate their income.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

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Categories: Investing
Andy Zhou: Andy Zhou graduated from the University of Waterloo in Ontario, Canada, in 2019 with an bachelor’s degree in mathematics (honors). Throughout his time at university, he took on various internships at many major Canadian companies, including the Royal Bank of Canada and Loblaw. In October 2016, he enrolled in the university’s official stock simulator game, StockTrak run by the Faculty of Mathematics. By the time of his graduation, Andy ranked fourth out of 535 participants, with a total portfolio net return of 98 percent. In the last year of university prior to his graduation, he founded and led the UW FIRE Club, where he led discussions and debates on all topics related to finance and investing.
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