Skip to Content
Stock Analyst Update

Schwab Benefits From High Trading Activity in Q1

We don't plan on making a change to the wide-moat company's fair value estimate.

Mentioned:

Wide-moat Charles Schwab (SCHW) significantly increased its exposure to active traders by merging with TD Ameritrade, and that has bolstered results in the current environment. Charles Schwab reported record net income of $1.48 billion, or $0.73 per diluted share, on $4.7 billion of net revenue. Excluding acquisition-related costs and amortization of intangibles, the company reported non-GAAP net income of $1.6 billion, or $0.84 per diluted share. Net revenue increased $539 million, or 13% sequentially, with $362 million of the increase coming from trading revenue. Trading revenue of $1.2 billion in the quarter is over 500% higher than it was a year ago before the merger with TD Ameritrade. While acknowledging that there has likely been a permanent increase in trading activity from the move to $0 commission equity trades at the end of 2019, annualized trades per active brokerage account of about 70 in the first quarter, according to our calculations, definitely looks like an aberration compared with about 50 trades in the fourth quarter of 2020 and averages in the teens for both Charles Schwab and TD Ameritrade before 2020. We don’t anticipate making a material change to our $56 fair value estimate for Charles Schwab.

Client assets at Charles Schwab were a record $7 trillion, up 6% sequentially, which will power long-term asset-based revenue and earnings growth; however, short-term earnings will be driven by trading. Asset management and administration fees increased $29 million, or 3%, while net interest income increased $102 million, or 5.6%, sequentially. The increase in net interest income is more related to the company’s trading activity, as interest on margin loans increased $119 million, or 27%, sequentially. Despite an increase in deposits and the company’s securities portfolio in its bank, interest from securities decreased $12 million, or 1%, sequentially due to lower yields.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Michael Wong does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.