Interactive Brokers Group Inc.
) third quarter 2012 earnings per share of 26 cents substantially
missed the Zacks Consensus Estimate of 35 cents. In addition, this
compares unfavorably with the year-ago quarter's earnings of 48
After considering the effect of changes in the U.S. dollar value of
Interactive's non-U.S. subsidiaries, earnings came in at 30 cents
per share compared with 34 cents in the year-ago quarter.
Results were impacted by fall in net revenue, partially mitigated
by lower operating expenses. Moreover, the performances of the
Market Making segment and Electronic Brokerage segment were not up
to the mark in the reported quarter.
Net income available to common shareholders was $12.5 million,
plummeting 44.4% from $22.5 million in the year-ago quarter.
Quarter in Detail
Interactive's total net revenue came in at $318.6 million,
declining 17.4% year over year from $385.6 million. The dip was
primarily attributable to lower interest income along with
significant fall in trading gains as well as commissions and
execution fees, partially mitigated by higher other income and
lower interest expenses. Net revenue was 3.2% lower than the Zacks
Consensus Estimate of $329.0 million.
Net income before taxes dropped 20.8% year over year to $172.6
million. Similarly, pre-tax profit margin fell from 56% in the
prior-year quarter to 54% in the reported quarter.
Total non-interest expenses were $146.0 million, down 13.0% from
$167.8 million in the prior-year quarter. The decline was mainly
due to lower execution and clearing expenses along with general and
administrative costs. However, these were partially offset by
higher employee compensation and benefits expenditure as well as
Market Making: Net revenue decreased 24.6% to $154.1 million from
$204.3 million in the prior-year quarter. Pre-tax income fell 29.8%
year over year to $90.2 million as a result of adverse Market
making environment including declining exchange traded volumes,
lower actual to implied volatility and tighter bid/offer spreads in
options. Further, pre-tax profit margin declined to 59% from 63%
recorded in the year-ago period.
Electronic Brokerage: Net revenue deteriorated 12.6% year over year
to $167.6 million. Similarly, pre-tax income stood at $80.8
million, falling 23.4% from the year-ago quarter. Pre-tax profit
margin was 48% compared with 55% in the prior-year quarter.
Additionally, total daily average revenue trades (DARTs) for
cleared and execution-only customers declined 21.0% year over year
As of September 30, 2012, cash and cash equivalents (including cash
and securities segregated for regulatory purposes) was nearly $14.0
billion, up 18.9% from $11.8 billion as of December 31, 2011. Total
assets recorded were $33.9 billion in the quarter, up 11.4% from
$30.4 billion as of December 31, 2011.
Total equity came in at $5.1 billion as against negative equity of
$0.5 billion as of December 31, 2011.
Concurrent with the earnings release, Interactive's Board of
Directors declared a quarterly cash dividend of 10 cents per share.
The dividend will be paid on December 14, to shareholders of record
as of November 30.
In spite of the lower-than-expected results, we believe that
Interactive's robust fundamentals and liquid balance sheet will
continue to boost investors' confidence in the stock. The company's
Market Making segment funds its dividend payment. However, off late
the segment is underperforming and that makes us wary about its
ability to consistently generate sufficient returns to fund
dividend payment. In addition, Interactive's better-than-peer
positioning and technological excellence makes us optimistic about
However, with lower trading activity in the markets, Interactive's
financials may get adversely affected since its revenue is highly
dependent on the trading volume at the stock exchanges.
Interactive currently holds a Zacks #3 Rank, which translates into
a short-term Hold rating. Considering the fundamentals, we also
maintain a long-term 'Neutral' recommendation on the stock.
Among Interactive's peers,
GFI Group Inc.
) is expected to announce its third quarter results on October 23.
GFI GROUP INC (GFIG): Free Stock Analysis
INTERACTIVE BRK (IBKR): Free Stock Analysis
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