Company Reports

Interactive Brokers reported strong first-quarter results. The company reported net income to common shareholders of $175 million, or $1.61 per diluted share, on $1.20 billion of net revenue. Net revenue increased 14% year over year and 6% sequentially. The increase in revenue from the previous year was primarily from a 17% increase in net interest income. Commissions increased 6% from a year ago and 9% sequentially. Interactive Brokers also raised its quarterly dividend to $0.25 per share from $0.10 per share. We don’t anticipate making a material change to our $118 fair value estimate for narrow-moat Interactive Brokers and view shares as fairly valued to slightly undervalued.

Interactive Brokers is a unique brokerage within our coverage. The firm serves a more niche client base. Apart from retail investors, the company also caters to the trading of institutional clients like hedge and mutual funds, proprietary trading groups, introducing brokers, and financial advisors. The commission mix between retail and institutional clients is about 55%/45%. Most of Interactive Brokers' clients still choose to pay commissions when many other retail brokerages switched to a zero-commission model for U.S. stock trading. The clients of Interactive Brokers are more sophisticated compared with the clients of Charles Schwab, TD Ameritrade, and E-Trade. To be more specific, they trade more frequently, maintain higher cash balances to make opportunistic moves, and take use of leverage. These trading-savvy customers are attracted by Interactive Brokers’ low margin rates, comprehensive trading platform, sophisticated trading execution capabilities, and high interest paid on idle cash.

Interactive Brokers is a unique brokerage within our coverage. The firm serves a more niche client base. Apart from retail investors, the company also caters to the trading of institutional clients like hedge and mutual funds, proprietary trading groups, introducing brokers, and financial advisors. The commission mix between retail and institutional clients is about 55%/45%. Most of Interactive Brokers' clients still choose to pay commissions when many other retail brokerages switched to a zero-commission model for U.S. stock trading. The clients of Interactive Brokers are more sophisticated compared with the clients of Charles Schwab, TD Ameritrade, and E-Trade. To be more specific, they trade more frequently, maintain higher cash balances to make opportunistic moves, and take use of leverage. These trading-savvy customers are attracted by Interactive Brokers’ low margin rates, comprehensive trading platform, sophisticated trading execution capabilities, and high interest paid on idle cash.

Interactive Brokers had a record year in terms of both top-line and bottom-line results. 2023 net revenue increased 42% to $4.34 billion compared with 2022, mostly driven by a 68% increase in net interest income. The fourth quarter of 2023 was like the previous quarters, with net revenue up 17% from the previous year’s quarter driven by stronger net interest income. Sequentially, net interest income was flat as the federal-funds rate plateaued and commission revenue increased by 5%. For the full year, the company had a record-high operating margin of 71% and earnings per share of $5.67. We don’t anticipate making a material change to our $112 fair value estimate for narrow-moat-rated Interactive Brokers and assess shares as undervalued.

Interactive Brokers reported strong third-quarter results. The company reported net income to common shareholders of $167 million, or $1.56 per diluted share, on $1.15 billion of net revenue. Net revenue increased 45% from the previous year and 15% sequentially. The increase in revenue from the previous year was primarily from a 55% increase in net interest income. We don’t anticipate making a material change to our $112 fair value estimate for narrow-moat Interactive Brokers and view shares as undervalued.

Interactive Brokers is a unique brokerage within our coverage. The firm serves a more niche client base. Apart from retail investors, the company also caters to the trading of institutional clients like hedge and mutual funds, proprietary trading groups, introducing brokers, and financial advisors. The commission mix between retail and institutional clients is about 55%/45%. Most of Interactive Brokers' clients still choose to pay commissions when many other retail brokerages switched to a zero-commission model for U.S. stock trading. The clients of Interactive Brokers are more sophisticated compared with the clients of Charles Schwab, TD Ameritrade, and E-Trade. To be more specific, they trade more frequently, maintain higher cash balances to make opportunistic moves, and take use leverage. These trading-savvy customers are attracted by Interactive Brokers’ low margin rates, comprehensive trading platform, sophisticated trading execution capabilities, and high interest paid on idle cash.

Interactive Brokers reported fair second-quarter results. The company reported net income to common shareholders of $125 million, or $1.20 per diluted share, on $1 billion of net revenue, which increased 52% from the previous year while decreasing 2% sequentially. The increase in revenue from the previous year was primarily due to a doubling of net interest income to $694 million. Interactive Brokers' low-duration strategy (of 40 days in its investment portfolio) benefits from the high-rate environment and has offset flat commission revenue when compared with the year-ago period. We don’t anticipate making a material change to our $113 per share fair value estimate for narrow-moat-rated Interactive Brokers and currently assess the shares as being undervalued.

Interactive Brokers is a unique brokerage within our coverage. The firm serves a more niche client base. Apart from retail investors, the company also caters to the trading of institutional clients like hedge and mutual funds, proprietary trading groups, introducing brokers, and financial advisors. The commission mix between retail and institutional clients is about 55%/45%. Most of Interactive Brokers' clients still choose to pay commissions when many other retail brokerages switched to a zero-commission model for U.S. stock trading. The clients of Interactive Brokers are more sophisticated compared with the clients of Charles Schwab, TD Ameritrade, and E-Trade. To be more specific, they trade more frequently, maintain higher cash balances to make opportunistic moves, and take use leverage. These trading-savvy customers are attracted by Interactive Brokers’ low margin rates, comprehensive trading platform, sophisticated trading execution capabilities, and high interest paid on idle cash.

We are initiating coverage on Interactive Brokers with a fair value estimate of $113 per share and assign the company a Morningstar economic moat rating of narrow, Uncertainty Rating of High, and capital allocation rating of standard. Interactive Brokers is an online broker that facilitates the trading of both U.S. and international clients. The company offers a wide variety of products, including stocks, options, futures, foreign exchange, bonds, etc. While market-making was a significant revenue driver in the past, the company divested the business in 2017 due to high volatility and low returns. We believe Interactive Brokers is now well positioned to see revenue growth by focusing on a pure brokerage business.

Interactive Brokers is a unique brokerage within our coverage. The firm serves a more niche client base. Apart from retail investors, the company also caters to the trading of institutional clients like hedge and mutual funds, proprietary trading groups, introducing brokers, and financial advisors. The commission mix between retail and institutional clients is about 55%/45%. Most of Interactive Brokers' clients still choose to pay commissions when many other retail brokerages switched to a zero-commission model for U.S. stock trading. The clients of Interactive Brokers are more sophisticated compared with the clients of Charles Schwab, TD Ameritrade, and E-Trade. To be more specific, they trade more frequently, maintain higher cash balances to make opportunistic moves, and take use leverage. These trading-savvy customers are attracted by Interactive Brokers’ low margin rates, comprehensive trading platform, sophisticated trading execution capabilities, and high interest paid on idle cash.