Schwab meets consensus EPS, misses top line, continues to lose accounts (1Q05 earnings results)

Apr.18.05 | About: The Charles (SCHW)

Schwab (ticker: SCH) missed revenue estimates but met consensus EPS estimates on carefully controlled costs. Despite the company's recent commission reductions, Schwab continued to lose accounts. Details and a quick comment:


Q1 Results
(all percentage changes and comparisons are year on year, unless stated otherwise)

  • Revenues of $1.06 billion missed consensus of $1.08 billion.
  • Operating expenses of $792 million were better (lower) than expected, so EPS of $0.12 was in-line with consensus.
  • Net account loss was 34,200, 0.47% of the account base at the start of the quarter. This was the eleventh straight quarter of net account losses.
  • Net new client assets reached $16.1B, the highest level since 3Q01.
  • Non-trading revenues were $852 million, up 14.1% and 1.2% sequentially, and were 80.5% of total revenues versus 67.4% a year earlier and 79.4% last quarter.
  • Revenue yield on client assets was 39.3 basis points versus 68.5 basis points for Citigroup’s Smith Barney Private Client unit.
  • Trading revenue of $207 million was down 5% sequentially.
  • Daily average revenue trades (DARTs) in early April declined 13% to 170,000 from March's level.
  • Average commission was $17.95, down from $33.16 (and $19.32 in the prior quarter).
  • Schwab repurchased $234 million of its stock, up from $149 million and equal to last quarter's.

Quick comment:
Schwab's aggressive price cuts have so far failed to halt account losses, though the size of the declines seems to be falling. Given that trading commissions account for less than 20% of Schwab's total revenue, it makes sense for Schwab to continue to cut commissions. Losing accounts means that Schwab loses revenue generating assets, whereas the impact on total revenue is now limited.

SCH chart below.

Sch_6

Full disclosure: at the time of writing I'm short SCH.