Seeking Alpha
Profile| Send Message|
( followers)  

Interactive Brokers Group, Inc.’s (IBKR) third-quarter earnings of 20 cents per share was substantially short of the Zacks Consensus Estimate of 32 cents. Earnings was also down 69.2% from 65 cents per share in the prior-year quarter.

As the result of constrained liquidity and other challenges in the market as a whole, the company experienced lower operating results during the reported quarter. Results for the quarter have been largely impacted by competitive pressure on spreads. However, the balance sheet remained highly liquid with relatively low leverage. The company actively managed its excess liquidity and maintained significant borrowing facilities through the securities lending markets and banks. Both revenue and earnings were down sequentially as well as year over year.

Net revenues for the quarter decreased 45.4% year over year to $271.5 million. The decrease in net revenues was mainly due to 57.2% decrease in trading gains to $154.7 million and 70.4% decrease in net interest income to $29.9 million. Commission and execution fees for the quarter were down 9.4% on a year-over-year basis to $89.0 million.

Net income (before income taxes and minority interest) decreased 61.7% on a year-over-year basis to $133.1 million. Pre-tax profit margin for the quarter was 49%, compared to 70% in the prior-year quarter.

Total non-interest expenses for the quarter decreased 7.5% year over year to $138.4 million. The decrease in non-interest expenses was due primarily to 16.2% decrease in execution and clearing expenses.

Net income available to common shareholders decreased 68.8% year over year to $8.5 million.

Market Making: During the reported quarter, net revenues in this segment decreased 58.2% year over year to $150.3 million. Income before income taxes decreased 73.6% year over year to $75.7 million. Pre-tax operating margin for this segment decreased to 49% from 79% in the prior-year quarter. The options contract volume for this segment decreased 23.6% year over year to 156,352 contracts.

Electronic Brokerage: During the quarter, net revenues in this segment decreased 9.7% year over year to $121.5 million. Income before income taxes decreased 2.8% year over year to $62.1 million. Pre-tax operating margin for this segment came in at 51% compared to 47% in the prior-year quarter. Customer accounts during the quarter increased 19.6% year over year to 128,000 and customer equity grew 42.6% year over year to $13.4 billion. The year-over-year growth in income was driven by robust customer trading and a greater number of customer accounts.

The company continued to maintain a highly liquid balance sheet with low leverage and a strong capital position. Though the company’s fundamentals are strong with increasing pre-tax profit margin due to its technological excellence, lower barriers to entry, sizeable international exposure and the recent weakness in equity markets will continue to impact profitability in the upcoming quarters. As such, we are maintaining our Neutral recommendation on the shares.

Source: Interactive Brokers Falls Short in Q3