Investment Banking and Brokerage

TD Ameritrade fourth-quarter profit up 21% before cutting commissions

Key Points
  • Online brokerage TD Ameritrade said Monday that its fiscal fourth-quarter profit jumped 21% in the last quarter before it slashed its trading commissions to zero.
  • Ameritrade said it expects its earnings to decline in the first quarter as it adjusts to losing more than $220 million in commission revenue because of the price change.
  • Going forward, Ameritrade will have to rely almost entirely on its asset-based fees for revenue.
Tim Hockey, CEO of TD Ameritrade.
Adam Jeffery | CNBC

Online brokerage TD Ameritrade said Monday that its fiscal fourth-quarter profit jumped 21% in the last quarter before it slashed its trading commissions to zero.

The Omaha, Nebraska-based company said it earned $551 million, or $1 per share. That's up from $454 million, or 80 cents per share a year ago.

Ameritrade said it expects its earnings to decline in the first quarter as it adjusts to losing more than $220 million in commission revenue because of the price change it announced earlier this month.

Ameritrade Chief Financial Officer Steve Boyle said the company will cut expenses, if needed, to balance out the lost revenue, but Ameritrade is working to attract new customers and increase its asset-based revenue.

During the fourth quarter, Ameritrade's revenue grew 11% to $1.56 billion. Roughly two-thirds of that revenue came from asset-based fees Ameritrade charges.

The analysts surveyed by FactSet expected TD Ameritrade to report earnings per share of 93 cents on revenue of $1.47 billion.

Going forward, Ameritrade will have to rely almost entirely on its asset-based fees for revenue. TD Ameritrade said it expects revenue in fiscal 2020 to fall in the range of $4.9 billion to $5.3 billion. That would be down from 2019's $6 billion in revenue.

CEO Tim Hockey said the company should be in a strong competitive position now that all the major brokers eliminated commissions on most trades.

"With price no longer in the mix, we will compete on the value of our offering with an exceptional client experience via our award-winning platforms and investor education, cutting-edge technology, and a full range of offerings," Hockey said.

TD Ameritrade shares have decreased 23% since the beginning of the year with most of the decline coming after the commission change was announced. In after-hours trading Monday following the earnings report, the stock gained 4.5% to sell for $39.35.

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