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Interactive Brokers (IBKR) Q1 Earnings Lag, Revenues Fall


Interactive Brokers Group, Inc. IBKR reported first-quarter 2017 adjusted earnings of 34 cents per share, which lagged the Zacks Consensus Estimate of 39 cents. Also, earnings were 33% below the prior-year quarter figure of 51 cents.

Decrease in revenues, higher expenses as well as disappointing segment performance led to the lower-than-expected results. However, on the upside, the company recorded improvement in interest income and a rise in DARTs.

Comprehensive net income available to common shareholders amounted to $28 million or 40 cents per share, down from $39 million or 60 cents per share in the prior-year quarter.

Decline in Revenues & Higher Expenses Hurt Results

Total net revenue declined 24% year over year to $374 million. The fall was primarily owing to a drastic plunge in trading gains as well as lower commissions and execution fees, and other income. Further, the figure was marginally below the Zacks Consensus Estimate of $375.5 million.

Total non-interest expenses increased 6% from the year-ago quarter to $161 million due to a rise in all components, except execution and clearing costs.

Income before income taxes came in at $213 million in the quarter, down 37% year over year. Similarly, pre-tax profit margin was 57% compared with 69% in the prior-year quarter.

Worsening Quarterly Segment Performance

Electronic Brokerage: Net revenue fell 10% year over year to $314 million. Pre-tax income declined 21% to $185 million. Total DARTs for cleared and execution-only customers were 657,000, down 12% from the year-ago quarter. Pre-tax profit margin declined to 59% from 68% in the prior-year quarter.

Market Making: Net revenue plunged 86% year over year to $8 million. Pre-tax loss was $22 million as against pre-tax income of $20 million a year ago. The segment reported pre-tax loss due to lower trading volumes and fall in volatility and in the actual-to-implied volatility ratio.

Notably, during the first quarter, management announced its plan to discontinue its options market making activities. The company plans to phase out these operations over the coming months and expects to incur roughly $25 million as one-time restructuring costs. Moreover, as a result of this restructuring, the company expects that nearly $39 million in annual net expenses will be absorbed by the Electronic Brokerage segment.

Moreover, the Corporate segment reported net revenue of $52 million, down 37% from the year-ago quarter. Pre-tax income was $50 million compared with $82 million in the prior-year quarter.

Capital Position Strengthens

As of Mar 31, 2017, cash and cash equivalents (including cash and securities set aside for regulatory purposes) totaled $26.4 billion compared with $25.9 billion as of Dec 31, 2016. As of Mar 31, 2017, total assets amounted to $56.3 billion compared with $54.7 billion as of Dec 31, 2016, while total equity was $6 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. Further, its restructuring efforts, though beneficial in the long run, are expected to dent bottom-line growth marginally.

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

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

Currently, Interactive Brokers carries a Zacks Rank #3 (Hold). 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 first-quarter 2017 earnings of 39 cents per share outpaced the Zacks Consensus Estimate of 37 cents. 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 Apr 20 and Apr 26, respectively.

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