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Interactive Brokers (IBKR) Lags on Q2 Earnings as Costs Rise

Zacks Equity Research

Interactive Brokers Group, Inc.’s IBKR second-quarter 2019 earnings per share of 43 cents lagged the Zacks Consensus Estimate of 48 cents. Moreover, the figure compared unfavorably with the prior-year quarter’s earnings of 57 cents.

Results were hurt by a decline in revenues along with higher expenses. However, the Electronic Brokerage segment’s performance remained decent in the quarter. Moreover, the company witnessed year-over-year rise in daily average revenue trades (DARTs).

Interactive Brokers reported comprehensive income available to common shareholders of $36 million or 46 cents per share compared with $28 million or 39 cents per share recorded in the prior-year quarter.

Revenues Decline, Expenses Rise

Total net revenues for the reported quarter were $413 million, down 7.2% year over year. The decline was due to a fall in commissions and trading gains along with rise in interest expenses. The company reported other losses of $30 million in the quarter. The top line lagged the Zacks Consensus Estimate of $509 million.

Total non-interest expenses increased 8% from the year-ago quarter to $188 million. Rise in all expense components except for execution, clearing and distribution fees, and communications costs were the reasons behind this increase.

Income before income taxes was $225 million, down from $271 million in the prior-year quarter. Pre-tax profit margin was 54%, down from 61% a year ago.

Quarterly Segmental Performance

Electronic Brokerage: Net revenues increased 6.8% year over year to $473 million. Pre-tax income rose 6.7% to $302 million. Total DARTs for cleared and execution-only customers were 828,000, up 4% from the year-ago quarter. Pre-tax profit margin remained unchanged at 64%.

Market Making: Net revenues were $20 million, down 9.1% from the prior-year quarter. Pre-tax income was $11 million, up 22.2% year over year. Pre-tax profit margin was 55% compared with 41% in the year-ago quarter.

The Corporate segment reported negative revenues of $80 million compared with $20 million in the year-ago quarter. Pre-tax loss was $88 million compared with loss of $21 million a year ago.

Strong Capital Position

As of Jun 30, 2019, cash and cash equivalents (including cash and securities set aside for regulatory purposes) totaled $32.3 billion compared with $25.7 billion as of Dec 31, 2018. As of Jun 30, 2019, total assets were $66 billion compared with $60.5 billion as of Dec 31, 2018. Total equity was $7.6 billion compared with $7.2 billion at the end of December 2018.

Our Take

While Interactive Brokers is poised to capitalize on growth prospects, backed by its market-leading position, technological advancement and optimization of resource allocation across global electronic networks, its high dependence on IBG LLC is a major concern. This is because, if IBG LLC fails to provide sufficient funds to pay taxes or for any other purpose, the company’s financial condition may suffer.

Interactive Brokers Group, Inc. Price, Consensus and EPS Surprise
 

Interactive Brokers Group, Inc. Price, Consensus and EPS Surprise

Interactive Brokers Group, Inc. price-consensus-eps-surprise-chart | Interactive Brokers Group, Inc. Quote

Currently, Interactive Brokers carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance and Upcoming Releases of Other Companies

Charles Schwab’s SCHW second-quarter 2019 earnings of 66 cents per share were in line with the Zacks Consensus Estimate. Also, the bottom line rose 10% from the prior-year quarter. Revenue growth (driven by rise in interest income) and an increase in total client assets aided the results.

We now look forward to E*TRADE Financial Corporation ETFC and TD Ameritrade Holding Corp. AMTD, which are slated to announce results on Jul 18 and Jul 22, respectively.

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