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Restructuring Efforts Aid Interactive Brokers (IBKR), Costs Ail

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Interactive Brokers Group, Inc.’s (IBKR - Free Report) continued efforts to develop proprietary software, low compensation expenses relative to net revenues, an increase in emerging market customers and higher interest rates will likely keep supporting financials.

Supported by a solid liquidity position, the company will likely be able to sustain dividend payments in the future, thus enhancing shareholder value.

Analysts seem to be optimistic regarding its earnings growth potential. The Zacks Consensus Estimate for Interactive Brokers’ current-year earnings has been revised 1.1% upward over the past 60 days.

However, elevated expenses (owing to technology upgrades and investments in franchise) are expected to hurt the company’s bottom line to an extent. Thus, IBKR currently carries a Zacks Rank #3 (Hold).

Over the past six months, shares of the company have gained 5.7% against a 13.3% decline of the industry.


Zacks Investment Research
Image Source: Zacks Investment Research


Looking at its fundamentals, Interactive Brokers’ total net revenues witnessed a compound annual growth rate (CAGR) of 12.5% over the last six years (2017-2022). The rise was mainly driven by an increase in interest income, commissions and the company’s business restructuring efforts. The upward trend in revenues continued in first-quarter 2023.

Net revenues are expected to improve further in the quarters ahead, given the rise in Daily Average Revenue Trades (DARTs). We anticipate total net revenues (GAAP) to witness a CAGR of 11.9% over the next three years.

Interactive Brokers has been undertaking several measures to enhance its global presence. The launch of IBKR GlobalTrader will enable investors around the world to trade stocks through mobile applications. The launch of IBKR Lite has enabled investors to trade commission-free and is, thus, expected to result in a rise in the company's market share.

The launch of Impact Dashboard, an innovative sustainable investing tool, has made the company the first major brokerage firm to allow investors easily align their portfolio with their values.

Further, IBKR’s position with respect to the interface of four broad historical trends is impressive. The company processes trades in stocks, futures, options and forex on more than 150 exchanges across several countries and currencies. Unlike many of its peers, the company has a very low level of compensation expenses relative to net revenues (12.1% in first-quarter 2023), primarily driven by its technological excellence.

However, the company’s expenses witnessed a CAGR of 10.4% over the six-year period ended in 2022, with the uptrend continuing in the first quarter of 2023. The increase was mainly due to higher execution, clearing and distribution fees.

As the company continues to invest in franchise, launch new services and upgrade technology, overall costs are anticipated to remain elevated, going forward. We project total non-interest expenses to see a CAGR of 9.8% by 2025.

Stocks to Consider

A couple of better-ranked finance stocks are JPMorgan (JPM - Free Report) and Artisan Partners Asset Management (APAM - Free Report) .

JPMorgan’s current-year earnings estimates have moved 10.8% upward over the past 60 days. The stock has appreciated 5.6% over the past six months. JPM currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Artisan Partners’ current-year earnings estimates have moved up 7% over the past 60 days. The company’s shares have lost 0.3% over the past six months. At present, APAM sports a Zacks Rank of 1.

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