Ameritrade ( AMTD ) added another feather to its cap recently, with SmartMoney Magazine awarding the online brokerage and financial services firm 5-star ratings in the "Customer Service," "Trading Tools" and "Mutual Funds & Investment Products" categories for the 19th Annual Broker Review. The company was also ranked 2nd among all discount brokers. The survey included Ameritrade's competitors like E-Trade ( ETFC ), Charles Schwab (NYSE:SCHW) and Fidelity among others.
We maintain a price estimate of $22.71 for Ameritrade, implying a premium to market price.
With Ameritrade continuing to improve its services to online investors, this article is aimed at helping understand the 4 sources of income which contribute to Ameritrade's stock value
1) Net Interest on Client Balances - represents 61% of the company's stock value
Ameritrade holds client assets as balances in money market accounts (under TD Bank), and other balances & securities. We estimate the interest on each of them to contribute 43% and 18% of Ameritrade's value respectively.
Money Market Deposit Accounts are similar to savings bank accounts, whereby clients can deposit money and in turn earn a high rate of interest. They can also make withdrawals as and when required without much notice, however based on certain rules and regulations.
Other investments from brokerage and banking clients are also used by Ameritrade to earn interest revenues.
2) Trading Commissions - 31%
Ameritrade allows individual investors to use its portal to make trades real time in the stock market and, in return, it charges its clients a certain commission per trade executed. Investors prefer an online brokerage that charges low commission and, at the same time, is secure and has an efficient transaction system
See the top forecasts for trading commissions
3) Investment Product Fees - 5%
Clients invest in Ameritrade programs such as AdvisorDirect and Amerivest TM. Ameritrade earns a fee in return for its services, which is a percentage of the client asset balances.
See the top forecasts for investment product fees
4) Maintenance & Service Fees and Others - 3%
These revenues includes realized gains and losses on sales of securities available for sale, service fees, and software maintenance fees.
See the top forecasts for maintenance & service fees and other
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