AP
TD Ameritrade 1Q Profit Up 65 Percent
Thursday January 17, 5:00 pm ET
By Josh Funk, AP Business Writer
TD Ameritrade Reports 65 Percent Jump in First-Quarter Profit


OMAHA, Neb. (AP) -- A surge in stock trading last fall helped online brokerage TD Ameritrade Holding Corp. generate a 65 percent increase in its quarterly net income.

The Omaha-based company said Thursday that asset-based revenue also continued to grow and accounted for more than half of its revenue in the October-December period.

But some analysts questioned whether Ameritrade could replicate its results, and the company's stock suffered as concerns about the ongoing credit crisis hurt stock prices across the market.

Ameritrade's shares fell $1.65, or 8.7 percent, to $17.34 Thursday.

Ameritrade reported $240.8 million in net income, or 40 cents per share, in the quarter that ended Dec. 31. That was up from $145.6 million, or 24 cents per share, in the same period a year ago.

Revenue increased 20 percent, to $641.6 million, from last year's $535.2 million.

Analysts polled by Thomson Financial had expected a profit of 39 cents per share on revenue of $622.63 million.

Ameritrade's results exceeded the revised forecast company officials offered last month when they predicted earnings of 39 cents per share in the quarter. The company's original forecast called for earnings between 27 cents and 33 cents per share.

On Thursday, the company said it expects to earn between $1.23 and $1.41 per share this year.

Banc of America Securities analyst Michael Hecht said he's not sure Ameritrade can sustain this quarter's performance because the company benefited from a lower-than-expected tax rate and Ameritrade paid less interest to its customers during the quarter.

Hecht said in a research note that he's also cautious about Ameritrade because 42 percent of the company's revenue comes from transaction fees, and trading is likely to slow down in 2008.

But Credit Suisse analyst Howard Chen said in a research note that Ameritrade's fiscal year appears to be off to a solid start.

"We believe that TD Ameritrade has been a primary beneficiary of the disruptions at E-Trade," Chen said.

Ameritrade has been able to draw customers away from rival E-Trade Financial Corp., which has been hurt by its investments in home loans. Analysts had predicted that Ameritrade and Charles Schwab Corp. could benefit from E-Trade's problems as its customers left in search of more-stable companies.

Ameritrade CEO Joe Moglia said about $2.3 billion, or about 25 percent, of the net new assets Ameritrade received during the quarter came from E-Trade customers who were moving their money.

During a conference call with analysts, Ameritrade officials emphasized what they said was their conservative approach to credit risks. Moglia said the company has refused to invest in risky items such as securities backed by subprime mortgages because the long-term risks outweigh the potential short-term rewards.

"Extra money in earnings is not worth potentially jeopardizing your franchise," Moglia said.

Ameritrade said it handled an average of 321,736 trades a day during the quarter, up from an average of 237,528 trades a day in the year-earlier quarter and 277,852 trades a day in the quarter that ended Sept. 30.

That led to a 34 percent increase in revenue from transaction fees. Ameritrade generated $260.3 million in transaction-based revenue in the quarter, up from $193.6 million a year ago.

Moglia said he expects the U.S. economy to slow down this year, which would affect Ameritrade's transaction revenue, but he said he doesn't believe there will be a recession.

Ameritrade's asset-based revenue reflects money earned on deposit accounts and various investment products. The company said it generated $372.9 million on asset-based fees in the quarter, up 14 percent from the $327.2 million asset-based fees generated a year ago.

Moglia has said the company wants one day to generate about 70 percent of its revenue from asset-based sources, which are more stable than transaction-based fees.

Ameritrade's acquisition of TD Waterhouse Group's U.S. retail securities business in January 2006 drove the increase in the company's asset-based revenue over the past two years.

TD Ameritrade Holding Corp.: http://www.amtd.com