Interactive Brokers: Company performance analysis

According to data from TipRanks, the majority of insider transactions over the past six months have been share sales. While this isn’t normally a good sign, there are many reasons for share sales including tax planning.

• Earl Nemser – Vice Chairman,Director
  Uninformative Buy, Grant/Award/Other Acquisition – 100,000 shares
• Milan Galik – CEO,Director
  Uninformative Sell, Auto Sell – 61,995 shares
• Thomas Aj Frank – CIO
  Uninformative Sell, Auto Sell – 8,127 shares
• Paul Jonathan Brody – CFO,Director
  Uninformative Sell, Auto Sell – 22,883 shares
• Denis Mendonca – CAO
  Uninformative Sell, Auto Sell – 1,964 shares
• Earl Nemser – Vice Chairman,Director
  Uninformative Sell, Auto Sell – 104,419 shares
• Thomas Peterffy – Chairman, Director
  Uninformative Buy, Grant/Award/Other Acquisition – 62,296 shares

Interactive Brokers is one of the leading online brokerages worldwide, boasting more than $454 billion in assets under management (AUM). AUM has grown steadily over the past five years, with fluctuations reflecting market volatility and user growth.

However, the above table shows AUA within its private banking group, expressed as “invested assets”.

The banking giant has seen a sharp rise in invested assets over the past three years, rising from £58 billion at the start of 2022 to £119.8 billion at the end of Q22024. The jump over the past 12 months was partially attributed to positive market movements.

Number of users vs previous year and quarter.

Interactive Brokers has seen strong client growth in recent years and, as of early 2024, boasts more than 2.6 million institutional and individual brokerages customers. Interestingly, this is around 30% more than the UK’s largest brokerage, Hargreaves Lansdown. The American firm has more than double the AUM of the Bristol-based company.

Average account size vs previous year and quarter.

The average account size has actually fallen in recent years. Analysis suggests that this reflects an influx of new investors during the pandemic, most of whom started with smaller portfolios, as well as negative market movements in 2022.

Average revenue per user (ARPU) vs previous year vs consensus estimates.

Average Revenue Per User (ARPU) has not followed a linear path in recent years. The spike in 2023 can be attributed to higher net interest income as interest rates spiked allowing Interactive Brokers and its peers to earn more on customer cash deposits.

Revenue vs previous year vs consensus estimates

Revenue generation has improved significantly over the past four years, moving from $2.5 billion in 2020 to $7.9 billion in 2023. This growth has been driven by improving net interest margins. Net interest income accounted for 61.5% of revenue in Q3 2023.

According to data from FactSet, this positive trend is set to stop. Revenue is expected to come in at $5.1 billion for the financial year ending December 2024.

Earnings per share (EPS) vs previous year vs consensus estimates

Earnings Per Share (EPS) has followed a more linear trajectory in recent years, and according to data from FactSet, that trajectory is set to continue. EPS is expected to come in around $6.82 in 2024.

Revenue breakdown.

In Q3 of 2023, Interactive Brokers made 61.5% of its revenue from net interest income. This compares with 28% from commission revenue and 8.2% from ‘other fees’. This highlights the importance of higher interest rates on revenue generation.

Gross margin vs previous year and quarter vs consensus estimates.

The gross profit margin is an indicator of gross profitability, reflecting the percentage of revenue that exceeds the cost of goods sold (COGS). Interactive Brokers has maintained a very strong gross profit margin with the figure being in excess of 90% for the past two years, according to data from FactSet.

Operating margin vs previous year and quarter vs consensus estimates.

The operating margin is a measure of profitability calculated by dividing operating income by sales. According to data from FactSet, the operating margin was 83.8% in 2023, up from 74.5% in 2022.

Free cash flow vs previous year vs consensus estimates.

Free Cash Flow (FCF) data doesn’t show a linear relationship with EPS and revenues. The company generated FCF of $9.7 billion in 2023, down from $22.8 billion in 2022, according to data from FactSet.

Analysts’ price targets and ratings including commentary.

Based on seven analysts offering 12-month price targets for Interactive Brokers in the last 3 months. The average price target is $144 with a high forecast of $152 and a low forecast of $123.25.