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TD Ameritrade's 4 revenue components are expected to contribute $4.7 billion in Net Revenues for full-year 2020
(1) Net Interest Revenue $1.5 billion (32%),
(2) Bank deposit account fees $1.8 billion (38%),
(3) Investment Product Fees $626 million (13%), and
(4) Other $801 million (17%)
Net Revenues
TD Ameritrade's Business Model
What Need Does It Serve?
TD Ameritrade is a leading brokerage firm in the U.S. and provides financial services to retail traders and registered investment advisors(RIA's).
In 2018, the company handled nearly 11.5 million brokerage accounts and $1.3 trillion of client assets.
Has 4 Revenue Components-
1. Net Interest Revenue: It is the interest earned on loans and margin receivables net of interest expense on funding sources.
2. Bank Deposit Account Fees: It is the fee earned for providing cash management services such as deposit accounts and money market mutual funds.
3. Investment Product Fees: It is the fee earned on client assets invested in investor programs, mutual funds, and money market funds.
4. Other Revenues: It includes proxy income, solicit and tender fees, and income from other ancillary services. We include order flow revenues under this category as the company no longer charges trading commissions.
What Are The Alternatives?
Charles Schwab, Etrade, Wells Fargo, Bank of America and other brokerages.
What Is The Basis of Competition?
Low fees, efficient transaction system, and customer service.
Ameritrade's Net Revenues have grown at a CAGR of 28% from $3.3 billion in 2016 to $5.5 billion in 2018, and are expected to shrink by 21% in 2020
Net Revenues
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% Change In Net Revenues
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Net Revenues are expected to shrink by 21%(about $1.2 billion) in 2020, primarily due to trading commissions
Ameritrade has added $2.1 billion to its net revenues over the last two years.
Net revenue growth was primarily driven by the net interest income and bank deposit fees, supported by increasing short-term interest rates.
Net Revenues (A+B+C+D+E)
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Net interest revenue (A)
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Bank deposit account fees (B)
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Investment product fees (C)
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Other revenues (D)
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Commissions and transaction fees (E)
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(A) Net Interest Revenue to remain relatively flat in 2020
Consistent with the downward trending short-term interest rates, we expect Ameritrade's net-interest margin to decline in 2020.
Despite the low interest rate environment, interest income is likely to grow in 2020 supported by growing client balances.
Net interest revenue (A = F x G)
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Interest Earning Client Balances & Securities (F)
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Net Yield on Interest Earning Client Balances & Securities (G)
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(D) Other Revenues are expected to surge in 2020
The company earned $458 million as payments for order flow in FY2019 and we recognize it as a recurring revenue stream under the ‘Other Revenue” category for our FY2020 projections.
Note: The company slashed its trading commissions to zero in October'19.
Other revenues (D)
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DISAGREE WITH OUR FORECASTS? CREATE YOUR OWN
1. How to save your forecasts:
Click on the blue "Try Trefis" button in the header to create an account, then navigate back to this dashboard. Now, any changes you make to these inputs will be auto-saved as a scenario (see left panel of dashboard).
2. How to monitor your scenario vs. actual results
Once you've saved your forecast, you can "rename" your scenario by clicking on the gear icon next to the scenario (on the left panel). For more info, see this quick, 30-sec video (look at the 9 sec mark)
With your forecast saved and named, you can see how well you forecast the company's performance at the end of each period and compare your forecasts to hundreds of other Trefis users who came up with their own forecasts. Lastly, you can share with friends and colleagues to show them how you fared and compare your forecasts to theirs.
