Back to top

Analyst Blog

Interactive Brokers Group, Inc.’s (IBKR - Analyst Report) third-quarter 2013 earnings per share of 32 cents came in line with the Zacks Consensus Estimate. Moreover, this compares favorably with 26 cents earned in the year-ago quarter.

Results were primarily driven by top-line growth and lower operating expenses. Electronic Brokerage segment witnessed continued improvement. Also, the Market Making improved marginally based on cost containment.

Net income available to common shareholders was $16.5 million, increasing 32.0% from $12.5 million in the year-ago period.

Performance in Detail

Interactive Brokers’ net revenue in the reported quarter came in at $326.3 million, up 2.4% year over year. Moreover, net revenue was 1.7% higher than the Zacks Consensus Estimate of $321.0 million.

The rise in revenues was primarily attributable to higher commission and execution fees, interest income, other income and lower interest expense. However, these were partly offset by decrease in trading gains.

Interactive Brokers’ net income before taxes in the reported quarter rose 13.8% year over year to $196.4 million. Similarly, pre-tax profit margin increased to 60% from 54% in the prior-year quarter.

Total non-interest expenses were $129.9 million, down 11.0% from $146.0 million in the prior-year quarter. The decline was mainly due to decrease in execution and clearing expenses as well as employee compensation and benefits expenditure. However, these were partially offset by rise in communications costs, general and administrative expenses as well as occupancy, depreciation and amortization costs.

Segmental Performance

Market Making: Net revenue fell 15.1% to $130.9 million from the prior-year quarter. Similarly, pre-tax income decreased 3.0% year over year to $87.5 million. However, pre-tax profit margin was 67%, up from 59% in the prior-year quarter.

Electronic Brokerage: Net revenue improved 16.2% year over year to $194.7 million. Likewise, pre-tax income was $108.4 million, increasing 34.2% from the year-ago quarter. Moreover, pre-tax profit margin was 56%, up from 48% in the prior-year quarter. Additionally, total daily average revenue trades (DARTs) for cleared-only customers increased 15.5% year over year to 426,000.

Balance Sheet

As of Sep 30, 2013, cash and cash equivalents (including cash and securities segregated for regulatory purposes) were $12.7 billion, up 1.6% from $12.5 billion as of Dec 31, 2012. Total assets were $36.3 billion, up 9.3% from $33.2 billion as of Dec 31, 2012.

Total equity came in at $5.1 billion compared with $4.8 billion as of Dec 31, 2012.

Dividend Update

Along with the earnings release, Interactive Brokers declared a quarterly cash dividend of 10 cents per share. The dividend will be paid on Dec 13 to shareholders of record as of Nov 29.

Performance of Other Investment Brokers

Among other investment brokers, The Charles Schwab Corporation’s (SCHW - Analyst Report) earnings of 22 cents beat the Zacks Consensus Estimate of 20 cents. Better-than-expected results were driven by top-line growth and a benefit from provision, partially offset by higher expenses.

Our Viewpoint

Interactive Brokers’ healthy balance sheet and strong financials are expected to boost investors’ confidence in the stock. Further, the company’s strong market position and technological excellence will likely be tailwinds, going forward.

Moreover, Interactive Brokers’ Market Making segment funds its dividend payments. Though the segment showed some improvement in the reported quarter, the company is skeptical about its ability to consistently generate sufficient returns in the future.

Interactive Brokers currently holds a Zacks Rank #2 (Buy).

Among other major investment brokers, TD Ameritrade Holding Corporation (AMTD - Analyst Report) is scheduled to report its fiscal fourth-quarter 2013 results on Oct 29 and E*TRADE Financial Corporation (ETFC - Analyst Report) is scheduled to report its third quarter 2013 results on Oct 23.

Please login to Zacks.com or register to post a comment.