Interactive's Earnings and Revs Lag - Analyst Blog

Interactive Brokers Group, Inc .'s ( IBKR ) first-quarter 2013 earnings of 14 cents per share missed the Zacks Consensus Estimate by 2 cents. This also compares unfavorably with the year-ago quarter's earnings of 27 cents.

The quarterly results lagged marginally owing to a drop in Interactive's top line, partially offset by a decline in operating expenses. Further, though there has been an improvement in the performance of Electronic Brokerage segment, Market Making segment's performance continues to drag down the overall results.

Net income available to common shareholders was $6.6 million in the first quarter, plummeting 40.5% from $11.1 million in the year-ago quarter.

Performance in Detail

Interactive's total net revenue in the first quarter stood at $216.1 million, declining 28.9% year over year. Moreover, net revenue was 15.6% lower than the Zacks Consensus Estimate of $256.0 million.

The dip was primarily attributable to a significant fall in trading gains. However, this was partially mitigated by increases in other income, commission and execution fees and rise in interest income as well as lower interest expenses.

Interactive's net income before taxes in the reported quarter fell 45.1% year over year to $82.2 million. Similarly, pre-tax profit margin fell from 49% in the prior-year quarter to 38% in the reported quarter.

Total non-interest expenses were $133.9 million, down 13.2% from $154.2 million in the prior-year quarter. The decline was mainly due to lower execution and clearing expenses, employee compensation and benefits expenditure along with communications costs. However, these were partially offset by higher occupation, depreciation and amortization costs and general and administrative expenses.

Segment Performance

Market Making: Net revenue plunged 83.4% from the prior-year quarter to $23.6 million. Pre-tax loss was $29 million for the reported quarter compared with pre-tax income of $66 million in the prior-year quarter.

Electronic Brokerage: Net revenue improved 23.0% year over year to $195.3 million. Likewise, pre-tax income stood at $111.0 million, increasing 33.1% from the year-ago quarter. Moreover, pre-tax profit margin was 57%, up from 52% in the prior-year quarter. Additionally, total daily average revenue trades (DARTs) for cleared-only customers increased 8.0% year over year to 422,000.

Balance Sheet

As of Mar 31, 2013, cash and cash equivalents (including cash and securities segregated for regulatory purposes) were $13.7 billion, down 2.9% from $14.1 billion as of Dec 31, 2012. Total assets were $35.1 billion, up 5.9% from $33.2 billion as of Dec 31, 2012.

Total equity came in at $4.82 billion as against total equity of $4.81 billion as of Dec 31, 2012.

Dividend Update

Concurrent with the earnings release, Interactive declared a quarterly cash dividend of 10 cents per share. The dividend will be paid on Jun 14, to shareholders of record as of May 31.

Performance of Other Investment Brokers

Charles Schwab Corporation 's ( SCHW ) earnings per share marginally missed the Zacks Consensus Estimate. Lower-than-expected results were attributable to higher operating expenses and a rise in provision for loan losses, partially offset by growth in the top line.

TD Ameritrade Holding Corporation 's ( AMTD ) fiscal second-quarter 2013 earnings marginally beat the Zacks Consensus Estimate. Better-than-expected results for the quarter reflected a rise in revenues and a decline in operating expenses.

Our Viewpoint

In spite of lower-than-expected results, Interactive's robust fundamentals and liquid balance sheet are expected to boost investors' confidence in the stock. Further, the company's strong market position and technological excellence are anticipated to act as tailwinds going forward.

Further, Interactive's Market Making segment funds its dividend payments. However, this segment is underperforming of late, which has made the company cautious about its ability to consistently generate sufficient returns to fund dividend payment.

Interactive currently holds a Zacks Rank #3 (Hold). Among other major investment brokers, E*TRADE Financial Corporation ( ETFC ) is scheduled to report results on Apr 18.

TD AMERITRADE (AMTD): Free Stock Analysis Report

E TRADE FINL CP (ETFC): Free Stock Analysis Report

INTERACTIVE BRK (IBKR): Free Stock Analysis Report

SCHWAB(CHAS) (SCHW): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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