Fidelity bigger than Schwab-
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Fidelity passes Schwab in accounts
Ameritrade's red in a sea of green on ad spend concerns
By Emily Church, CBS MarketWatch
Last Update: 1:02 PM ET Oct 28, 1999 Also: NewsWatch
NEW YORK (CBS.MW) -- Online brokerage giant Charles Schwab lost its lead in active online accounts to Fidelity in the September quarter, according to a Salomon Smith Barney report on Thursday.
Fidelity's rise to the top spot comes as a real surprise. Schwab (SCH: news, msgs) has been the dominate player in the space. The discounter is still leading the e-brokerage pack in terms of customer assets at $263.6 billion in the third quarter vs. $202.6 billion for Fidelity, the number two, and number three TD Waterhouse (TWE: news, msgs) at $45 billion, said analyst Richard Zandi.
Schwab's also processed more trades than its rivals with 7.4 million in the third quarter vs. 5.1 million for nearest rival E-Trade.
Still, Schwab's made clear that it's "not going after every piddling account, but looking for quality accounts," he said. Schwab said in its report for the quarter that the average amount of assets of each new account in the quarter was $44,000. "That's a lot of dough," Zandi noted.
Fidelty reported 3.060 million accounts; Schwab reported just under 3 million.
Ameritrade slump
Meanwhile, Ameritrade's shares were among a lonely group of motley decliners on Thursday as the bulk of the financial stocks rallied on an inflation-friendly report.
The online brokerage largely met analysts' estimates for account growth, revenue and performance in its September quarter report late Tuesday, but nagging concerns about the amount of money that Ameritrade is spending to get new customers are building among some investors, analysts said.
Ameritrade (AMTD: news, msgs) was recently off 1/2 to 16 1/2 just before a conference call with analysts began Thursday morning. Stock in rivals E-Trade (EGRP: news, msgs), Charles Schwab (SCH: news, msgs), TD Waterhouse (TWE: news, msgs), DLJ Direct (DIR: news, msgs) and National Discount Brokers (NDB: news, msgs), to name a few, were rallying higher.
Ameritrade isn't the only online brokerage to bite the bullet on spending to get more accounts and assets to manage. In fact, usual big spender E-Trade was the notable exception in posting lower-spending per account in the just-ended quarter.
Yet questions are building over Ameritrade's ability to generate the kind of account growth that spending an estimated $451 per net new account in the September quarter means.
"Ameritrade's got to prove themselves here. E-Trade's already done it. There's just more uncertainty about Ameritrade," said Greg Smith, industry analyst at Hambrecht and Quist.
Moreover, the bar seems to be rising in media ad spending for the group, Salomon's Zandi said. "Thirty percent of the ads during the World Series were from brokerages," he said. People are going to start having difficulty differentiating, he said.
Ameritrade spent $25 million in the last weeks of the quarter on marketing, and plans are to up ad spending to $60 million in the coming quarter, several analysts said. The broker also lost share to Datek Online in number of trades processed during the quarter, slipping to the number 5 spot from the number 4 spot in the second quarter, Zandi said.
Russell Keene, analyst at Putnam, Lovell and Thorton, is looking for Ameritrade's spending per account to come down to around $400 per net new account in the fourth quarter. The December quarter's "going to be key" for the company, he said.
As a factor of that spending, he's estimating 150,000 new accounts. "That's more than they've ever added, but they've also never spent this much," he said.
September performance
Ameritrade on Wednesday reported a $9.2 million loss for its fiscal fourth quarter.
Per share, Ameritrade posted a net loss of 5 cents vs. a 3 cent per share gain, or $5.8 million, in the year-ago period. Ameritrade said its net income was hurt by Y2K costs and a cancelled stock offering in August for a total charge of $2.1 million.
The Omaha brokerage said net revenue slid 5 percent against the third quarter to $74.5 million as trading volumes declined over the summer. Trades per day slipped 11 percent in the quarter to 53,102. Most online brokerages have reported a decline in September quarter volumes.
Assets in customer accounts totaled $22.9 billion, a one percent increase over the June quarter.
The company said it expects the pace of account growth to continue. "We're confident that Ameritrade will exceed our annual record of account additions and will continue building market share," said Thomas K. Lewis, Jr., co-chief executive in the statement.
Emily Church is the New York bureau chief for CBS MarketWatch.
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