A month has gone by since the last earnings report for Interactive Brokers Group, Inc. (IBKR - Free Report) . Shares have added about 5.6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is IBKR 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 Beats on Q1 Earnings, Costs Rise
Interactive Brokers’ first-quarter 2018 earnings per share of 63 cents surpassed the Zacks Consensus Estimate of 56 cents. Also, the figure was higher than prior-year quarter’s figure of 34 cents per share.
Results benefited from an improvement in revenues and rise in DARTs. Further, the Electronic Brokerage segment continued to perform decently. However, higher expenses were the undermining factor.
The company reported comprehensive income available to common shareholders of $47 million or 65 cents per share, up from $28 million or 40 cents per share reported in the prior-year quarter.
Revenues Improve, Expenses Escalate
Total net revenues for the quarter increased 40.9% year over year to $527 million. The rise was primarily driven by an increase in commission fees, trading gains and interest income, partially offset by rise in interest expense. The figure surpassed the Zacks Consensus Estimate of $477.5 million.
Total non-interest expenses increased 16.1% from the year-ago quarter to $187 million. The increase was primarily due to higher execution and clearing expenses, employee compensation and benefits costs, general and administrative costs, and customer bad debt.
Income before income taxes was $340 million in the quarter, up from $213 million in the prior-year quarter. Similarly, the pre-tax profit margin was 65% compared with 57% in the prior-year quarter.
Quarterly Segment Performance
Electronic Brokerage: Net revenues increased 48.1% year over year to $465 million. Pre-tax income rose 57.3% to $291 million. Total DARTs for cleared and execution-only customers were 939,000, up 43% from the year-ago quarter. Pre-tax profit margin improved to 63% from 59% in the prior-year quarter.
Market Making: Net revenues were $21 million, up from $8 million recorded in the prior-year quarter. Pre-tax income was $9 million compared with a loss of $22 million in the year-ago quarter. Pre-tax profit margin was 43% compared with a pre-tax loss margin of 275% in the prior-year quarter.
Moreover, the Corporate segment reported net revenues of $41 million compared with $52 million in the year-ago quarter. Pre-tax income was $40 million, down 20% year over year.
As of Mar 31, 2018, cash and cash equivalents (including cash and securities set aside for regulatory purposes) totaled $22.2 billion compared with $22 billion as of Dec 31, 2017.
As of Mar 31, 2018, total assets amounted to $59.1 billion compared with $61.2 billion as of Dec 31, 2017. Total equity was $6.7 billion compared with $6.4 billion at the end of December 2017.
As the increase in the Fed funds target rates will benefit net interest income (NII), Interactive Brokers expects to produce an additional $9 million in NII over the next four quarters with another 25 basis points rise in overnight interest rates.
Further, as a result of the discontinuation of its options market making activities, the company expects nearly $40 million in net expenses annually to be absorbed by the Electronic Brokerage segment.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter. Last month, the consensus estimate has shifted by 5.9% due to these changes.
Interactive Brokers Group, Inc. Price and Consensus
At this time, IBKR has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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 growth investors than momentum investors.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise IBKR has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.