This is a great thread in terms of flushing out whether this company is a technologically enabled disrupter and a great long term business.... or something else.(??)
Like most of you here, I'm a value guy and only want to pay up if I am getting much more than I am paying for.
Here, its all about the calculation of competitive advantage and what the next 5+ years will bring. Its easy to see the earnings double if the growth of the recent past keeps up, but where is the margin of safety if it does not? Its not cheap at 27X
I too am a user as an RIA and fund manager....but only after Schwab told me they would open a pooled account for us and then changed their mind. It was a steep curve in terms of getting my mind around the market maker activities, the safety and brand for clients, and the learning curve overall with the account set up, etc.
I echo all the sentiments I have read above about customer service, GUI, and overall user experience being inferior to Schwab, Fidelity and others in respects.
On the plus side:
We are not frequent traders, but I have grown to like TWS. I like the portfolio analyzer statements and they are generally spot on in terms of accuracy when I compare the reports to those generated by our fund admin. I think their security is better than Schwab/Fidelity. They are definitely more friendly to the entrepreneurial RIA or emerging fund manager.
The low cost advantage doesn't mean much to us because we are LT investors.....BUT, I am surprised they do not have a tiered pricing model based on trading activity. This would really juice the operating income and if they doubled my trading costs I would not leave.
They have compounded new accounts at 16% plus since 2008
The CAGR for operating income ex-market making since 2011 is 50% +
ROE has averaged 9% over the last 5 years. The CEO would like to overcome concerns about the balance sheet and larger institutional clients preferring the JPM's of the world so he will continue to build excess capital.
He is a driven, "fanatic" in the tradition of other "outsider" CEO's and the type Munger/Buffett would look for.
So the major question I have is:
Is there a sustainable moat being built in the form of a long term low cost producer advantage?
Does it really matter to the wider universe of RIA's, frequent traders and international customers? How many of these guys and introducing brokers are really out there looking for a better place to trade?
Some would say they have a particularly long runway outside the U.S.
I'd be really interested in flushing this out more because if they continue to grow and/or even accelerate the growth, this is going to be a great ride provided they can manage the risks. Getting caught in a black swan environment or too many small RIA's committing fraud or blowing up causing reputational damage for them as the prime broker is a concern.