Interactive Brokers Q3 Earnings Beat on Higher Revenues

Interactive Brokers Group, Inc. IBKR reported third-quarter 2015 adjusted earnings per share of 35 cents, which surpassed the Zacks Consensus Estimate of 31 cents. Also, earnings compared favorably with the year-ago quarter figure of 5 cents per share.

 

Interactive Brokers Group Inc. - Earnings Surprise | FindTheBest

Shares of the company declined over 1% in the after-market trading session despite the earnings beat. The increase in expenses could be a concern for investors.

Results benefited from growth in net revenues. Improvement in daily average revenue trades (“DARTs”) and enhanced performance across the Electronic Brokerage and Market Making segments were the tailwinds.

On a comprehensive basis, net income available to common shareholders in the reported quarter amounted to $14.0 million or 23 cents per share, compared with a loss of $8.0 million or 13 cents per share in the prior-year quarter.

Performance in Detail

Interactive Brokers’ total net revenues grew substantially on a year-over-year basis to $359.0 million. The increase was primarily due to a rise in trading gains, commissions and execution fees as well as a reduction in other loss and interest expense. However, it lagged the Zacks Consensus Estimate of $377.0 million.

Total non-interest expenses came in at $157.0 million, up 20% from the year-ago quarter. The rise was mainly attributable to an increase in all the expense components except communications expenses as well as general and administrative expenses.

Income before income taxes rose significantly year over year to $202.0 million. Similarly, pre-tax profit margin stood at 56% against 23% in the prior-year quarter.

As of Sep 30, 2015, cash and cash equivalents (including cash and securities set aside for regulatory purposes) totaled $22.5 billion compared with $16.7 billion as of Dec 31, 2014. As of Sep 30, 2015, total assets and total equity summed to $47.2 billion and $5.3 billion, respectively.

Segmental Performance

Market Making: Net revenue came in at $90.0 million, up 84% year over year. Also, pre-tax income increased substantially year over year to $46.0 million. Further, pre-tax margin stood at 51%, compared with 14% in the year-ago quarter. Improved performance of the segment was a result of higher volatility and active trading in the late-August period.

Electronic Brokerage: Net revenue improved 22% year over year to $300.0 million. Moreover, pre-tax income grew 19% year over year to $184.0 million, driven by higher commissions and net interest income. However, pre-tax profit margin inched down to 61% from 63% in the prior-year quarter. Additionally, total DARTs for cleared-only customers increased 28% year over year to 620,000.

Notably, the Corporate segment reported a reduction in losses during the quarter. Net revenues were a negative figure of $31.0 million compared with a negative figure of $123 million in the year-ago quarter. Further, pre-tax loss narrowed to $28.0 million from $122 million in the prior-year quarter.

Our Take

Interactive Brokers’ better-than-peer positioning, adoption of technology and optimization of resource allocation in global electronic networks set it apart from its competitors, making it well positioned for future growth. Also, the company’s healthy liquidity and robust capital position will continue to accelerate its expansion process.

However, we remain apprehensive regarding the heightening competitive environment and rising volatility weighing on the company’s profitability in the near term.

Currently, Interactive Brokers holds a Zacks Rank #1 (Strong Buy). Among other investment brokers, E*TRADE Financial Corp. ETFC and Piper Jaffray Companies PJC are slated to report third-quarter 2015 results on Oct 22, while KCG Holdings, Inc. KCG is scheduled to announce results on Oct 30.

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