Interactive Brokers Group Inc.
) fourth quarter 2012 earnings of 19 cents per share missed the
Zacks Consensus Estimate by 2 cents. In addition, this compares
unfavorably with the year-ago quarter's earnings of 29 cents.
INTERACTIVE BRK (IBKR): Free Stock Analysis
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For 2012, Interactive's earnings were 89 cents per share, lagging
the Zacks Consensus Estimate by a penny. Also, this was nearly
35% below the last year's earnings of $1.37. After considering
the effect of changes in the U.S. dollar value of Interactive's
non-U.S. subsidiaries, earnings came in at 92 cents in 2012
compared with $1.31 in 2011.
The quarterly results marginally lagged owing to a drop in
Interactive's top line, partially offset by slight decline in
operating expenses. Further, though there was a slight
improvement in Electronic Brokerage segment's performance, Market
Making segment's performance was not up to the mark in the
Net income available to common shareholders was $9.1 million in
the fourth quarter, plummeting 33.1% from $13.6 million in the
year-ago quarter. In 2012, net income stood at $40.7 million,
plummeting 34.2% year over year.
Performance in Detail
Interactive's total net revenue in the fourth quarter stood at
$247.1 million, declining 19.7% year over year. 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 revenues were 9.5% lower than the
Zacks Consensus Estimate of $273.0 million.
For 2012, total net revenue were $1,130.5 million, falling 16.8%
from $1,358.3 million in 2011. However, net revenues were 8.0%
below the Zacks Consensus Estimate of $1,228.0 million.
Net income before taxes in the fourth quarter fell 36.8% year
over year to $96.2 million. Similarly, pre-tax profit margin fell
from 49% in the prior-year quarter to 39% in the reported
Total non-interest expenses were $150.9 million, down 3.1% from
$155.7 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 plunged 56.8% from the prior-year
quarter to $71.8 million. Pre-tax income fell 90.7% from $90.8
million in the year-ago quarter to $8.4 million. Further, pre-tax
profit margin dropped to 12% from 55% recorded in the year-ago
Electronic Brokerage: Net revenue improved 3.4% year over year to
$172.1 million. Likewise, pre-tax income stood at $87.3 million,
increasing 1.9% from the year-ago quarter. Yet, pre-tax profit
margin was 51% down from 52% in the prior-year quarter.
Additionally, total daily average revenue trades (DARTs) for
cleared-only customers declined 8.0% year over year to 378,000.
As of December 31, 2012, cash and cash equivalents (including
cash and securities segregated for regulatory purposes) was $14.1
billion, up 19.8% from $11.8 billion as of December 31, 2011.
Total assets recorded were $33.2 billion, up 9.2% from $30.4
billion as of December 31, 2011.
Total equity came in at $4.8 billion as against negative equity
of $0.5 billion as of December 31, 2011.
Concurrent with the earnings release, Interactive declared a
quarterly cash dividend of 10 cents per share. The dividend will
be paid on March 14, to shareholders of record as of March 1.
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. In
addition, the company's better-than-peer positioning and
technological excellence make us optimistic.
Further, Interactive's Market Making segment funds its dividend
payment. However, off late the segment is underperforming and
that makes us cautious about its ability to consistently generate
sufficient returns to fund dividend payment. Also, with lower
trading activity in the markets, the company'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 Rank #3 (Hold). Also,
considering the fundamentals, we maintain a long-term Neutral
recommendation on the stock.
Among Interactive's peers,
Knight Capital Group, Inc.
) is expected to announce its fourth-quarter results on January