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Interactive Brokers (IBKR) Q4 Earnings Lag, Revenues Fall

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Interactive Brokers Group, Inc. (IBKR - Free Report) reported fourth-quarter 2016 adjusted earnings of 7 cents per share, which significantly lagged the Zacks Consensus Estimate of 32 cents. Also, earnings were 72% below the prior-year quarter figure of 25 cents.

Significant decrease in revenues, higher expenses as well as disappointing performance of the Market Making and Corporate segments led to the lower-than-expected quarterly results. However, on the upside, the company recorded improvement in interest income and a rise in DARTs.

Comprehensive net loss available to common shareholders amounted to $3 million or 5 cents per share, as against net income of $12 million or 18 cents per share in the prior-year quarter.

 



For 2016, adjusted earnings per share of $1.25 missed the Zacks Consensus Estimate of $1.56. However, it was 60% above the 2015 level. Further, comprehensive net income available to common shareholders was $80 million or $1.19 per share, up from $39 million or 62 cents per share in 2015.

Revenues Slump, Higher Costs Hurt Results

Total net revenue for the quarter tanked 29% year over year to $193 million. The top line declined primarily because of a drop in trading gains and higher other losses, partially offset by higher commissions and execution fees, and interest income. Also, the figure missed the Zacks Consensus Estimate of $296.5 million.

For 2016, total net revenue was up 17% year over year to $1.40 billion. However, the figure lagged the Zacks Consensus Estimate of $1.46 billion.

Total non-interest expenses increased 15% from the year-ago quarter to $165 million due to a rise in all components, except absence of customer bad debt in the reported quarter and stable general and administrative costs.

Income before income taxes came in at $28 million in the quarter, down 78% year over year. Similarly, pre-tax profit margin was 15%, compared with 47% in fourth-quarter 2015.

Capital Position Strengthens

As of Dec 31, 2016, cash and cash equivalents (including cash and securities set aside for regulatory purposes) totaled $25.9 billion, compared with $22.9 billion as of Dec 31, 2015. As of Dec 31, 2016, total assets amounted to $54.7 billion, compared with $48.7 billion as of Dec 31, 2015, while total equity was $5.8 billion compared with $5.3 billion on Dec 31, 2015.

Quarterly Segment Performance: Market Making Continues to Disappoint

Electronic Brokerage: Net revenue grew 34% year over year to $294 million Pre-tax income also rose 49% to $168 million. Total DARTs for cleared and execution-only customers were relatively stable at 640,000. Pre-tax profit margin improved to 57% from 52% in the prior-year quarter.

Market Making: Net revenue plunged 35% year over year to $45 million. Pre-tax income also plummeted 56% to $12 million. Therefore, pre-tax margin declined to 27% from the year-ago level of 39%.

Moreover, the Corporate segment reported pre-tax loss of $152 million compared with $13 million in the prior-year quarter. Net revenue was negative $146 million, compared with negative $17 million in the year-ago quarter.

Our Take

Interactive Brokers is poised to capitalize on growth scopes backed by its market-leading position, technological advancement and optimization of resource allocation across global electronic networks. Also, a strong liquidity and capital position will continue to support its expansion initiatives.

However, stiff competition and increasing volatility may continue to hamper the company’s near-term profitability.

Interactive Brokers Group, Inc. Price, Consensus and EPS Surprise

 

Interactive Brokers Group, Inc. Price, Consensus and EPS Surprise | Interactive Brokers Group, Inc. Quote

Currently, Interactive Brokers sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Among other investment brokers, we now look forward to E*TRADE Financial Corporation ,  Raymond James Financial, Inc. (RJF - Free Report) and Evercore Partners Inc. (EVR - Free Report) which are expected to report their results on Jan 25, Jan 26 and Feb 1, respectively.

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