We are downgrading our long-term recommendation on Interactive
Brokers to Neutral as the Daily Average Revenue Trades (DARTs) have
been declining since past six months. Nevertheless, the company's
first-quarter 2014 adjusted earnings outpaced the Zacks Consensus
Estimate, driven by significant improvement across both Electronic
Brokerage and Market Making segments. However, these positives were
partially offset by increase in expenses. Though the Market Making
segment benefited from the prevalent volatility during the quarter,
we remain skeptical about its sustainability. Nevertheless, high
barriers to entry, strong liquidity position, better-than-peer
positioning and technological excellence keep us optimistic.
Headquartered in Greenwich, CT, Interactive Brokers Group Inc.
operates as an automated global electronic market maker and broker
with 901 employees worldwide as of Mar 31, 2014. The company
specializes in routing orders, besides executing and processing
trades in securities, futures, foreign exchange instruments, bonds
and mutual funds on more than 100 electronic exchanges and trading
venues worldwide. Incorporated in 1977, the company operates
through two principal business segments:
Market Making: The company operates the Market Making business
through its Timber Hill subsidiaries. Interactive Brokers provides
continuous bid and offer quotations on over 964,000 tradable
securities and futures related products listed on electronic
exchanges worldwide. The company is a market leader in
exchange-traded equity options and equity-index options and
futures, accounting for approximately 9.0% of equity options traded
Electronic Brokerage: As an electronic broker, the company
executes, clears and settles trades globally for both institutional
and individual customers. From a single account in any major
currency, the customers can access products traded on more than 100
exchanges and market centers across 23 countries and in 21
The two business segments are complementary and benefit from
knowledge and technological synergies as well as from the combined
scale and volume. This enables the company to provide low-cost
services to its customers.
On May 3, 2007, Interactive Brokers priced its initial public
offering (IPO) of the common stock. Prior to the IPO, the company
had conducted its business through a limited liability company
(LLC) structure. In connection with the IPO, the company purchased
10.0% of the membership interest in IBG LLC. As of Mar 31, 2014,
Interactive Brokers Group's primary assets are its ownership of
approximately 13.6% of the membership interests of IBG LLC. The
remaining 86.4% of the membership interests are held by IBG
Periodically, Interactive Brokers involves itself in strategic
investments and acquisitions. The company has made strategic
investments in electronic trading exchanges including Boston
Options Exchange LLC, OneChicago LLC, ISE Stock Exchange LLC and
CBOE Stock Exchange LLC. Interactive Brokers has also made
investments in Quadriserv Inc., an electronic securities lending
platform provider and Factor Advisors, LLC, an Exchange Traded
Funds (ETF) issuer. The company acquired FutureTrade Technologies
LLC a technology solutions provider to hedge funds and other
institutional investors and its wholly owned subsidiary,
FutureTrade Securities LLC.
As of Mar 31, 2014, Interactive Brokers had $38.98 billion in
total assets, $16.6 billion in cash and cash equivalents (including
segregated cash and securities of $15.6 billion) and $723.0 million
in stockholders' equity.
Interactive Brokers Group, Inc. (IBKR): Read the
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