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Non-Tech : AMERITRADE HLD A (NASDAQ:AMTD)
AMTD 0.980-3.0%3:41 PM EST
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To: smartInvestor who wrote (293)7/23/1998 3:59:00 PM
From: T.K. Horeis  Read Replies (1) of 1848
 
I suspect it is multiple things:
1) more efficient cost structure (although I really don't have a good basis for this hypothesis
2) their user base is different from E*Trade's. E*Trade jumped on the 'advertise to the masses' bandwagon earlier, so a larger pct. of their investors are the Joe Average who don't trust regular brokers and want to get in on the incredible returns in the stock market in recent years. You'll notice that the account sizes are much larger on Ameritrade with more trades per customer. This indicates a population of much more involved investors. It also indicates that they will make more profit per investor. Although, I think the profit per customer will start to go down over time as they attract more of the E*Trade-like customer that will not make as many trades.
3) more efficient advertising. If you look at the text of their recent quarterly report you will see that they have the lowest number of dollars spent per new customer. This qtr the number was $92 per new customer, which brings their avg. down to $220 per new customer. This is below the industry average of $250 per account.

I am in fact, an E*Trade customer, but invested (I'm still long) in AMTD because they've always done a better job of generating PROFIT on the business. I haven't changed my account because basically it's a real pain to change brokers. I suspect that's true for all the online brokers and that they key to winning is in attracting new customers. Both AMTD and EGRP are doing it, but I think AMTD is making more of it when you look compare the revenues of the two.

I also think that the split will help AMTD's stock price, although it won't do anything for their business. Right now AMTD has very low institutional investorship. Once there is a larger number of shares available it becomes easier for funds to get involved.
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