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Why Is Interactive Brokers (IBKR) Up 5.7% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Interactive Brokers Group, Inc. (IBKR - Free Report) . Shares have added about 5.7% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to their next earnings release, or is the stock due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Interactive Brokers Q4 Earnings Lag, Revenues Fall

Interactive Brokers reported fourth-quarter 2016 adjusted earnings of $0.07 per share, which significantly lagged the Zacks Consensus Estimate of $0.32. Also, earnings were 72% below the prior-year quarter figure of $0.25.

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 $0.05 per share, as against net income of $12 million or $0.18 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 $0.62 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.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend for fresh estimate. There have been two downward revisions for the current quarter.

VGM Scores

At this time, Interactive Brokers's stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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