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Analyst Blog

Interactive Brokers Group, Inc.’s (IBKR - Analyst Report) second-quarter 2014 adjusted earnings per share of 26 cents missed the Zacks Consensus Estimate of 29 cents. However, the reported figure was up from 21 cents earned in the year-ago quarter.

Results benefited mainly from growth in revenues as well as substantial control in non-interest expenses. Sustainable performances of both the Electronic Brokerage and Market Making segments also aided the overall results.

Net income available to common shareholders in the reported quarter was $15.1 million, up 46.6% from $10.3 million in the prior-year quarter.

 



Performance in Detail

Interactive Brokers’ net revenue came in at $309.3 million, up 8.9% year over year. The increase was mainly driven by substantial trading gains and higher interest income as well as lower interest expenses, partly offset by fall in other income and commission and execution fees.

Total non-interest expenses were $135.1 million, down 9.9% from the prior-year quarter. The decline was largely due to reduction in employee compensation and benefits as well as execution and clearing expenses. However, these positives were somewhat offset by a rise in occupancy costs, communications expenses as well as general and administrative expenses

Income before income taxes rose to $174.2 million, up 30.1% from the year-ago quarter. Similarly, pre-tax profit margin mounted to 56% from 47% in the prior-year quarter.

As of Jun 30, 2014, cash and cash equivalents (including cash and securities set aside for regulatory purposes) were $16.5 billion compared to $15.2 billion as of Dec 31, 2013. Total assets were $40.2 billion as of Jun 30, 2014 compared to $37.9 billion as of Dec 31, 2013.

Total equity came in at $5.3 billion as of Jun 30, 2014 versus $5.1 billion as of Dec 31, 2013.

Segmental Performance

Market Making: Net revenue was $91.9 million, up 36% from the prior-year quarter. Similarly, pre-tax income was $46.5 million compared with $7.6 million in the year-ago quarter. Further, pre-tax profit margin was 51% compared with 11% in the year-ago quarter. The rise in pretax income was mainly attributable to currency translation effects.

Electronic Brokerage: Net revenue improved 3.8% year over year to $220.6 million. Pre-tax income increased 6.6% to $131.4 million. Further, pre-tax profit margin rose to 60% from 58% in the prior-year quarter. Additionally, total daily average revenue trades (DARTs) for cleared-only customers increased 5% year over year to 484,000.

Our Viewpoint

Interactive Brokers’ healthy balance sheet with low leverage and strong financials are expected to enhance investors’ confidence in the stock. Moreover, the company’s focus on diversification and technological excellence will likely aid growth going forward.

However, Interactive Brokers’ DARTs which have been under pressure since the beginning of the year as well as its exposure to certain risks associated with international operations make us wary of its long-term growth sustainability. Also, the Market Making segment’s high sensitivity to the fluctuating volatility is keeping us cautious.

Interactive Brokers’ currently carries a Zacks Rank #4 (Sell).

Among other major investment brokers, TD Ameritrade Holding Corp. (AMTD - Analyst Report) is scheduled to report third-quarter fiscal 2014 results on Jul 22 whereas E*TRADE Financial Corp. (ETFC - Analyst Report) and GFI Group Inc. (GFIG - Snapshot Report) are slated to announce their second-quarter results on Jul 23 and 24, respectively.

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