Charles Schwab Posted Record Quarterly Revenue of $7.08 Billion. Can It Vault Higher, or Was This a Peak?

In this news:

Key takeaways

Charles Schwab reported record quarterly revenue of $7.08 billion, up 21% year over year.
Non-GAAP net income surged 32% higher to reach more than $2.9 billion.
Daily average revenue trades increased by 57% to a total of 11.9 million.

High-water mark

Although it's thrilling when an investor's company hits an all-time high in one of its fundamentals, that investor has to be careful. It's difficult to top a record, and there are many examples of companies that hit peaks they never scaled again.

So Charles Schwab shareholders -- myself included -- should take a careful look at the company's second quarter, in which the veteran financial services company reported a historic high in quarterly revenue.

Let's put a number or two on that peak, then analyze the reasons for it. In the quarter, Schwab's total revenue came in at almost $7.1 billion. That was a robust 21% higher year over year, but despite being a new record, it was overshadowed by the growth of net income not under generally accepted accounting principles (non-GAAP, or adjusted). This surged 32% higher to more than $2.9 billion.

What was the rocket fuel that sent those numbers flying so high? Basically, it was a mix of high growth in Schwab's foundational business, i.e., its brokerage operations, with energetic client take-up of offerings that lie more in the financial services sphere.

As for those brokerage functions, the company's customers simply traded much more actively.

Daily average revenue trades (DARTs; a standard performance metric for brokerages) zoomed 57% higher to total 11.9 million. That, perhaps not surprisingly, was a new quarterly record for the company. Other metrics showing this larger appetite for trading included a recent pop in margin loan balances (up 30% sequentially to over $165 billion).

Many casual observers might not be aware that Schwab has a banking license, all the better to generate another revenue stream. This seems to be working well, thank you very much, as evidenced by a 33% year-over-year rise in bank loan balances to $67 billion. Not to be outdone, the specialized and lucrative Schwab Wealth Advisory service saw its net flows grow by 80%.

Branching out again

In that earnings report, Schwab made sure to tout newer offerings, like the recently introduced Schwab Crypto (no prizes for guessing what investors can buy with that service). Some might consider the company a crypto-jockey-come-lately, but such things were likely said about those other non-brokerage services before they started contributing meaningfully.

Given that, I wouldn't underestimate Schwab's ability to build such a business into a handsome revenue earner.

I'd imagine more than a few analysts tracking the stock would agree with me. After all, their consensus estimate for the company's annual earnings per share (EPS) growth this year is 33%, before cooling to a still-high 20% in 2027. The average pundit projections for revenue growth are 18% and 12%, respectively.

Meanwhile, Schwab is priced to move, as they say. Forward P/E lies under 13, which seems unsustainably cheap given the percentage figures above.

Equity markets are up and down by their nature, so the current frothiness in financial markets might not last (same with demand for non-brokerage services). But for those of us who are at least cautiously optimistic that the upward trend will continue, Schwab's a fine stock to own.

Share the article: