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Interactive Brokers (IBKR) Q2 Earnings Lag, Revenues Rise

Interactive Brokers Group, Inc. IBKR reported second-quarter 2017 adjusted earnings of 32 cents per share, which lagged the Zacks Consensus Estimate by a penny. Also, earnings were 20% below the prior-year quarter figure of 40 cents.

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 amounted to $29 million or 41 cents per share, up from $24 million or 36 cents 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.

In addition, the segments’ 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.

Our Take

Interactive Brokers is poised to capitalize on growth scopes backed by its market-leading position, technological advancement and optimization of resource allocation across global electronic networks. Also, a strong liquidity and capital position will continue to support its expansion initiatives. However, stiff competition, a rise in expenses and increasing volatility may continue to hamper the company’s near-term profitability.

Currently, Interactive Brokers carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Brokers

The Charles Schwab Corp.’s SCHW second-quarter 2017 earnings were in line the Zacks Consensus Estimate. Revenue growth, lower level of fee waivers and no provisions were among the positives. However, higher expenses and a decline in trading revenues remained the headwinds.

Among other investment brokers, we now look forward to E*TRADE Financial Corporation ETFC and Raymond James Financial, Inc. RJF, which are slated to report their results on Jul 20 and Jul 26, respectively.

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E*TRADE Financial Corporation (ETFC): Free Stock Analysis Report
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