Interactive Broker Group Should Raise Upwards of $1 Billion In Tomorrow's IPO

Interactive Brokers Group Inc. (IBKR), an automated global electronic market maker and broker, is a hot issue that is debuting tomorrow on the NASDAQ. Led by Thomas Petereffy, the company strives to provide liquidity and beat competitors through better pricing, speed, size and its diversity of global products and trading tools. Interactive Brokers maintains a competitive advantage through low trading costs helped by its proprietary trading systems and technology.

The company has adapted quickly to take advantage of the opportunities presented by new exchanges and financial products. Over the past year, Interactive Brokers has added access to Swedish, Japanese and Hong Kong stocks, floor-traded CME and CBOT futures and NYMEX physical energy futures and commodity futures. The addition of new offerings to the company's clients has only helped fuel already accelerating earnings growth. Total net revenues for 2006 increased $323.3 million, or 35%, to $1,252.4 million, compared to $929.1 million in 2005. Net income also increased dramatically by $198.7 million, or 37%, to $734.2 million for the year ended 2006 from $535.5 million in the previous year.

The strategy has paid off as Interactive Brokers has become the number one liquidity provider on the three largest U.S. options exchanges and its affiliates now trade 18.7% of the world's exchange traded equity options and executes approximately 500,000 trades per day. The company's market share continues to grow; markets in which Interactive Brokers actively trades have gone up to 18.7% in 2006 compared to a 12.3% share of the market in 2004. Market growth on U.S. options exchanges also continues to occur, with Interactive Brokers holding a 12.6% market share in 2004 that climbed to 21.4% in 2006. Since 2003, the company's total customer and market making trades have grown on average by 31% a year.

Though one major risk could be the company's recent foray into penny spread options which is expected to take a bite out of earnings, the company believes the move to decrease bid/offer spreads will only help increase its market share by capturing additional order flow that would help boost revenue.

Originally, Interactive Brokers intended to go public by selling twenty million shares at a range of $23 to $27, but after reading the prospectus, it appears obvious why demand has notched the offering to upwards of 34 million shares at a higher price range of $27 to $31. After the increase, Interactive Brokers is expected to be the second company this year to raise more than $1 billion.