Ameritrade Perks Up Online Broker Results

Ameritrade (AMTD Quote - Cramer on AMTD - Stock Picks) customers braved the volatile market last quarter more often than anticipated, pushing the online broker's earnings into the black.

Analysts had expected a loss of 1 cent a share, but Ameritrade surprised them with earnings of 3 cents for its fiscal third quarter ending June 30, up from 2 cents a share reported for the second quarter and down from 5 cents a share one year ago.

So, Ameritrade does indeed have more active investors than some competitors, and those investors weren't as spooked by the down market as those at some other brokerages. That helped it finish what many had expected to be a losing quarter for the major online brokers on a positive note.

After the spring's disastrous drop in Nasdaq stocks, Ameritrade's average number of daily trades dropped 17% to 123,929 during the quarter, compared to rivals' 25% declines.

Meanwhile, the average Ameritrade customer traded about seven times, Chief Financial Officer Randy McDonald said Tuesday in the conference call. That compares with about four trades a quarter at competitors Charles Schwab (SCH Quote - Cramer on SCH - Stock Picks) E*Trade (EGRP Quote - Cramer on EGRP - Stock Picks), says Rich Repetto, an analyst at Lehman Brothers

"It seems like the more active traders didn't pull back from the market as much as the Schwab customer or the E*Trade customer," Repetto says. Lehman hasn't done any underwriting for Ameritrade.

Indeed, privately held Datek Online earlier this year -- well-known for its active customer base -- said average daily trades in the April-June quarter fell 14%.

While the online brokers reported slower account growth and lower trading volumes, they did manage to produce positive results. Schwab and E*Trade reported earnings last week and only DLJdirect (DIR Quote - Cramer on DIR - Stock Picks), a unit of Donaldson Lufkin & Jenrette (DLJ Quote - Cramer on DLJ - Stock Picks), ended up in the red. This could end up being important because the current quarter isn't expected to be any better than last and trading volume is expected to be off 10% to 15%.

Ameritrade earnings beat expectations in part because the company reined in costs on advertising and on its personal finance site, OnMoney, Repetto says.

Ad Spending Slows

It spent only $41.2 million on advertising, down from $54.8 million in the previous quarter, as the volatile market and decline in trading activity pushed online brokers industrywide to cut spending.

Big budgets and splashy ad campaigns may not be on the back burner for long though; next year Ameritrade plans to spend $200 million on advertising.

Meanwhile, OnMoney, the start-up Ameritrade hopes to finance with outside investors and then spin off, cost $16.2 million in development spending, down from the $29.8 million spent in the previous quarter.

OnMoney Chief Executive Officer Vincent Passione said during the call that the unit is doing due diligence with several investors and hopes to wrap up the investment soon.

While Ameritrade customers traded more during the last quarter, they also ended the quarter with fewer assets. The total held in customer accounts declined $4.1 billion to $34.8 billion at the end of March, a 10.5% drop. The company doesn't break out net inflows so it's difficult to determine outflows, or what part of those assets declined due to the market's volatility.

By comparison, E*Trade's customer assets fell 8.5% during the same period and Schwab's fell 2.2%. The number of Ameritrade customers sharing that asset pot got larger during the quarter, as the company added 186,000 new accounts for a total of 1.16 million.