Ameritrade - Harvard Case Study
Ameritrade Holding Corporation is securities brokerage services and technology-based financial services firm from the United States. The company was founded in 1971 and is headquartered in Omaha, Nebraska. “Ameritrade MERITRADE for self-directed retail investors; TD AMERITRADE Institutional that provides brokerage and custody services; trading platforms that enables research and analysis; a suite of education products and services for stock, option, foreign exchange, futures, mutual fund, and fixed-income investors; Amerivest, an online advisory service that develops portfolios of exchange-traded funds to help long-term investors pursue their financial goals; and TD AMERITRADE Corporate Services, which offers self-directed brokerage services to employees and executives of corporations (Yahoo Profile).”
Ameritrade also serves as a provider of services such as; trade execution, clearing, trustee, and trust-related services; and cash sweep products through third-party banking relationships. Ameritrade offers its clients “innovative trading technology, easy-to-use and understand investment tools and services, investor education and superior client service to create a market-leading financial services experience (Ameritrade). The firm’s common stock trades under the ticker symbol AMTD on the NasdaqGS and trades at approximately $19.30. Even in difficult times Ameritrade has held pretty strong, during the latest market fluctuation Ameritrade has held its value relatively well from a high 9/15/2008 ($23.58) it’s value is only down 18% compared to it’s competitors such as Charles Schwab Corp who over the same period is off over 28% ($25.25 to $18.18).
Ameritrade planned to grow their revenues by targeting self directed investors. Joe Rickett the CEO decided Ameritrade’s mission was to be the largest brokerage firm worldwide based on the number of trades. This plan called for price cutting, technology enhancements, and increased advertising. This requires project risk. Obviously, the plan would only create value if this investment returned more than it cost. Estimating the cost of capital for Ameritrade is important.
Ameritrade is doing to the right thing by evaluating their risks. Knowing the cost of capital is important to determine the company’s value of operations and evaluate the effects of alternative strategies. We will use the Capital Asset Pricing Model to estimate the required rate of return for investments. Some of the firms that are direct competitors of Ameritrade include, Charles Schwab Corp, E*TRADE Financial Corporation and Pvt1 a privately held firm. Below is a direct comparison of these firms in certain segments.
|DIRECT COMPETITOR COMPARISON | | |AMTD |SCHW |ETFC |Pvt1 |Industry | |Market Cap: |11.37B |22.20B |3.18B |N/A |505.85M | |Employees: |5,240 |12,400 |3,084 |400,001 |801 | |Qtrly Rev Growth (yoy): |3.00% |-23.20% |N/A |N/A |17.90% | |Revenue (ttm): |2.39B |4.16B |436.22M |12.94B1 |233.42M | |Gross Margin (ttm): |96.77% |100.00% |60.87% |N/A |89.88% | |EBITDA (ttm): |N/A |N/A |N/A |N/A |8.36M | |Oper Margins (ttm): |44.96% |36.69% |-180.29% |N/A |16.72% | |Net Income (ttm): |595.54M |787.00M |-1.30B |N/A |N/A | |EPS (ttm):...