The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
added another feather to its cap recently, when
awarded 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 second among all discount brokers. The survey included Ameritrade's competitors like
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 four sources of income which contribute to Ameritrade's stock value
The first source is net interest on client balances, which 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. See our
for interest on money market balances.
Other investments from brokerage and banking clients are also used by Ameritrade to earn interest revenues. See our
for interest on other balances & securities (link:
The second source is trading commissions, representing 31% of the company's value. 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 our
for trading commissions.
The third source is investment product fees, which represent 5% of the company's value. 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.
for investment product fees.
The fourth source is maintenance and service fees and others, representing 3% of the company's value. These revenues include realized gains and losses on sales of securities available for sale, service fees, and software maintenance fees. See our
for maintenance and service fees and others.
See our full analysis for Ameritrade
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