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Why Is Interactive Brokers (IBKR) Up 10.9% Since the Last Earnings Report?
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It has been about a month since the last earnings report for Interactive Brokers Group, Inc. (IBKR - Free Report) . Shares have added about 10.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Interactive Brokers reported second-quarter 2017 adjusted earnings of $0.32 per share, which lagged the Zacks Consensus Estimate by a penny. Also, earnings were 20% below the prior-year quarter figure of $0.40.
Higher expenses and lower trading volume hurt the results. On the other hand, an increase in revenues, improved Electronic Brokerage segment performance and a rise in DARTs acted as tailwinds.
Comprehensive net income available to common shareholders was $29 million or $0.41 per share, up from $24 million or $0.36 per share in the prior-year quarter.
Higher Expenses More Than Offset by Revenue Growth
Total net revenue grew 5% year over year to $387 million. The rise was primarily driven by higher commission fees and interest income, partially offset by decline in trading gains. The figure surpassed the Zacks Consensus Estimate of $356.5 million.
Total non-interest expenses increased 17% from the year-ago quarter to $183 million. The rise was mainly due to significant jump in general and administrative costs.
Income before income taxes came in at $204 million in the quarter, down 4% year over year. Similarly, pre-tax profit margin was 53% compared with 58% in the prior-year quarter.
Improvement in Quarterly Segment Performance
Electronic Brokerage: Net revenue increased 8% year over year to $334 million. Pre-tax income rose 4% to $198 million. Total DARTs for cleared and execution-only customers were 669,000, up 3% from the year-ago quarter. Pre-tax profit margin declined to 59% from 62% in the prior-year quarter.
Market Making: Net revenue plunged 47% year over year to $23 million. Pre-tax loss was $24 million as against pre-tax income of $5 million a year ago. The segment reported pre-tax loss due to lower trading volumes (as the company is exiting its options market making division) and fall in volatility and in the actual-to-implied volatility ratio.
Additionally, the segment’s results included nearly $22 million in one-time exit costs, mainly consisting of the write-down of exchange trading rights.
Moreover, the Corporate segment reported net revenue of $30 million, surging 88% from the year-ago quarter. Pre-tax income was $30 million, up 76% from the prior-year quarter.
Capital Position Strengthens
As of Jun 30, 2017, cash and cash equivalents (including cash and securities set aside for regulatory purposes) totaled $26.3 billion compared with $25.9 billion as of Dec 31, 2016. As of Jun 30, 2017, total assets amounted to $57.6 billion compared with $54.7 billion as of Dec 31, 2016. Total equity was $6.2 billion compared with $5.8 billion at the end of December.
Outlook
While increase in the Fed funds target rates will be beneficial on net interest income (NII), Interactive Brokers expects to produce an additional $30 million in NII for the coming year with another 25 basis points rise in overnight interest rates. Moreover, with the full effect of reinvestment at higher rates, an addition NII will be $35 million annually.
During the first quarter, management had announced its plan to discontinue its options market making activities. As part of this, the company had expected to incur a total of $25 million as one-time restructuring costs. Of this, the remaining roughly $3 million of cost is expected to be incurred in third-quarter 2017. Moreover, as a result of this restructuring, the company expects that nearly $39 million in annual net expenses will be absorbed by the Electronic Brokerage segment.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter.
Interactive Brokers Group, Inc. Price and Consensus
At this time, Interactive Brokers's stock has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
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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Why Is Interactive Brokers (IBKR) Up 10.9% Since the Last Earnings Report?
It has been about a month since the last earnings report for Interactive Brokers Group, Inc. (IBKR - Free Report) . Shares have added about 10.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Interactive Brokers Q2 Earnings Lag, Revenues Rise
Interactive Brokers reported second-quarter 2017 adjusted earnings of $0.32 per share, which lagged the Zacks Consensus Estimate by a penny. Also, earnings were 20% below the prior-year quarter figure of $0.40.
Higher expenses and lower trading volume hurt the results. On the other hand, an increase in revenues, improved Electronic Brokerage segment performance and a rise in DARTs acted as tailwinds.
Comprehensive net income available to common shareholders was $29 million or $0.41 per share, up from $24 million or $0.36 per share in the prior-year quarter.
Higher Expenses More Than Offset by Revenue Growth
Total net revenue grew 5% year over year to $387 million. The rise was primarily driven by higher commission fees and interest income, partially offset by decline in trading gains. The figure surpassed the Zacks Consensus Estimate of $356.5 million.
Total non-interest expenses increased 17% from the year-ago quarter to $183 million. The rise was mainly due to significant jump in general and administrative costs.
Income before income taxes came in at $204 million in the quarter, down 4% year over year. Similarly, pre-tax profit margin was 53% compared with 58% in the prior-year quarter.
Improvement in Quarterly Segment Performance
Electronic Brokerage: Net revenue increased 8% year over year to $334 million. Pre-tax income rose 4% to $198 million. Total DARTs for cleared and execution-only customers were 669,000, up 3% from the year-ago quarter. Pre-tax profit margin declined to 59% from 62% in the prior-year quarter.
Market Making: Net revenue plunged 47% year over year to $23 million. Pre-tax loss was $24 million as against pre-tax income of $5 million a year ago. The segment reported pre-tax loss due to lower trading volumes (as the company is exiting its options market making division) and fall in volatility and in the actual-to-implied volatility ratio.
Additionally, the segment’s results included nearly $22 million in one-time exit costs, mainly consisting of the write-down of exchange trading rights.
Moreover, the Corporate segment reported net revenue of $30 million, surging 88% from the year-ago quarter. Pre-tax income was $30 million, up 76% from the prior-year quarter.
Capital Position Strengthens
As of Jun 30, 2017, cash and cash equivalents (including cash and securities set aside for regulatory purposes) totaled $26.3 billion compared with $25.9 billion as of Dec 31, 2016. As of Jun 30, 2017, total assets amounted to $57.6 billion compared with $54.7 billion as of Dec 31, 2016. Total equity was $6.2 billion compared with $5.8 billion at the end of December.
Outlook
While increase in the Fed funds target rates will be beneficial on net interest income (NII), Interactive Brokers expects to produce an additional $30 million in NII for the coming year with another 25 basis points rise in overnight interest rates. Moreover, with the full effect of reinvestment at higher rates, an addition NII will be $35 million annually.
During the first quarter, management had announced its plan to discontinue its options market making activities. As part of this, the company had expected to incur a total of $25 million as one-time restructuring costs. Of this, the remaining roughly $3 million of cost is expected to be incurred in third-quarter 2017. Moreover, as a result of this restructuring, the company expects that nearly $39 million in annual net expenses will be absorbed by the Electronic Brokerage segment.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter.
Interactive Brokers Group, Inc. Price and Consensus
Interactive Brokers Group, Inc. Price and Consensus | Interactive Brokers Group, Inc. Quote
VGM Scores
At this time, Interactive Brokers's stock has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
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.