Online broker Ameritrade has announced the launch of two new services.
The recent poor stock market performance has lead to a sharp decline in the trading volumes conducted by online traders. This in turn has jeopardized the profitability of online brokerage houses, as their revenues are primarily transaction based. As a result of this slowdown Ameritrade has faced a significant decline in profitability, moving from a net income in excess of $11 million for 1999 to a loss of over $13 million in 2000. In an effort to move back into a profitable position Ameritrade has restructured its offering to include two new services, Ameritrade Pro and Ameritrade Plus, which will be unveiled during the spring of 2001.
Ameritrade Pro is targeted at the professional day trader, who conducts multiple transactions per day, this offering was developed in conjunction with the recent acquisition of Houston-based day trading firm, Tradecast. Its other additional offering, Ameritrade Plus is targeting a more upscale client who is willing to pay premium price for professional brokerage services. The company will likely change the pricing structure of this offering to include a periodic fee as opposed to its transaction only based model, which will lead to an increase in the stability of revenue streams.
This restructuring of Ameritrade increases its appeal to a much broader and more profitable client segment. Charles Schwab followed a similar strategy in 2000 by acquiring investment management company US Trust and day trading firm Cybercorp.
The level of transactions conducted per account is unlikely to grow in the short to medium term. In turn, online brokerage firms will continue to restructure their offerings in order to maintain profitable operations. Additionally, the level of industry-specific M&A activity is likely to increase as larger brokerage firms acquire niche players for their client base and trading technology.
