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Charles Schwab slides as revenue lands just short of forecasts
Charles Schwab shares slid 2.7% after third-quarter profit beat estimates but revenue landed just under forecasts, a narrow miss that outweighed record client inflows on the day.
Quick Read
- Charles Schwab shares slid 2.7% after revenue came in just under analyst forecasts.
- Third-quarter profit beat estimates, and revenue and new client assets both reached records.
- Trading revenue grew on stronger client activity, and net interest revenue also climbed.
- The Federal Reserve's Oct. 28 rate decision could affect what Schwab earns on client cash.
What did Charles Schwab report?
Charles Schwab (NYSE: SCHW) shares slid 2.7% on Thursday, closing at $94.16 from $96.80. The broker lost $4.6 billion in market value, leaving it worth about $160 billion.
Why it matters: Adjusted profit for the third quarter beat the analyst consensus, which is the average forecast and works as the bar to beat. Revenue reached a record and grew from a year earlier. Still, it came in just below the consensus.
Why did the shares fall despite the profit beat?
Reports tied the decline to revenue landing just short of estimates. The stock was already trading lower before the regular session opened on Thursday.
The drop stood out on a firm day for financial stocks. A fund tracking the financial sector gained 1.4%, and the S&P 500 rose 0.3%.
What drove Schwab's growth?
Trading revenue grew on stronger client activity, the company said. Net interest revenue also climbed. That is the money Schwab earns on client cash and loans beyond what it pays out.
Its net interest margin improved from a year earlier. That margin is the gap between what it earns on assets and what it pays on deposits. Fees from asset management rose on demand for wealth management services.
Core net new assets, the money clients brought in, reached a record. Schwab also opened new brokerage accounts and bought back shares during the period. Chief executive Rick Wurster pointed to growing demand for the firm's wealth management, trading and banking services.
What could move Schwab shares next?
Much of Schwab's income ties to interest rates through client cash and bank lending. The Federal Reserve announces its next rate decision on Oct. 28 at 2 p.m. ET. A shift in rates could change what the firm earns on client balances.
For readers
What it could mean for you: People who own Schwab shares directly felt the full drop, with no other holdings to offset it. The firm's growth in client assets and interest income may matter more over time than a narrow revenue miss. Even so, the reaction shows that small gaps against forecasts can still move the price. Rate changes, including any from the Fed on Oct. 28, could shift what Schwab earns on client cash and loans. That income may shape how the stock trades from here.
Questions and answers
Why did Charles Schwab stock fall after earnings?
Revenue landed just below the analyst consensus, even though it reached a record. The shares slid 2.7% on Thursday despite profit beating estimates.
Did Charles Schwab beat earnings estimates?
Yes. Adjusted profit for the third quarter came in above the analyst consensus. Revenue fell just short.
How do interest rates affect Charles Schwab?
Schwab earns net interest revenue on client cash and bank loans. Its net interest margin improved from a year earlier, and changes in Fed policy could shift that income.
The numbers
| Charles Schwab (SCHW) price | $94.16 |
|---|---|
| Charles Schwab (SCHW) change | −2.73% |
| Charles Schwab (SCHW) market value | $160 billion |
| S&P 500 change | +0.33% |
| 10-year Treasury yield | 5.10% |
Thursday’s close
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Not investment advice.
