Interactive Brokers Group, Inc. (IBKR +0.53%) continues to transform its business from a volatile market maker with a brokerage company attached to being laser-focused on electronic brokerage and the strategy is starting to pay dividends for investors. The company saw a 41% jump in revenue in the first quarter and with thousands of new customers on its trading platform each quarter, the momentum doesn't look like it's going to stop.
Here's a look at the key metrics from the first quarter of 2018 and where Interactive Brokers goes from here.
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Interactive Brokers Group, Inc.: The raw numbers
| Metric | Q1 2018 | Q1 2017 | Year-Over-Year Change |
|---|---|---|---|
| Net revenue | $527 million | $374 million | 41% |
| Net income | $46 million | $24 million | 92% |
| Diluted EPS | $0.63 | $0.34 | 85% |
Data Source: Interactive Brokers Group, Inc. Q1 2018 earnings release.
What happened with Interactive Brokers Group, Inc. this quarter?
Growth in electronic brokerage trading continues to drive Interactive Brokers' business. Growth in customers and equity was followed by more trading and increased interest income during the quarter. Here are the highlights.
- Electronic brokerage revenue rose 48% to $465 million and income before taxes was up 57% to $291 million.
- Total accounts in the brokerage business jumped 27% to 517,000 and equity in those accounts jumped 33% to $129.2 billion.
- Total daily active revenue trades (DARTs) per account were up 14% to 439 on an annualized basis and commissions per DART rose $0.03 to $4.04. As a result, net revenue per average account jumped 19% to $3,768 on an annualized basis.
- Each trading segment saw significant growth with options volume up 31%, futures up 40%, and stock trading up 16%.
- Interest income, primarily from margin trading, was up 53% versus a year ago to $75 million.
- Market-making revenue increased from $8 million to $21 million and income before taxes was $9 million. Most of the market-making business has been shut down or sold, so investors can expect these numbers to decline long term.
- There was a $38 million gain on Interactive Brokers' currency diversification strategy, which was lower than the $49 million gain a year ago.
- Interactive Brokers declared a dividend of $0.10 per share payable on June 14, 2018 to shareholders of record on June 1, 2018.
What management had to say
After years of up and down results from market making, the transition to a brokerage-focused business model is helping Interactive Brokers. Market making will be a negligible portion of the business with management saying this in the earnings release:
The current quarter's results reflect higher trading gains and lower operating costs on the remaining operations. In the third quarter of 2017 we completed the transfer of our U.S. options market making business to Two Sigma Securities, LLC and by year-end we had exited the majority of our market making activities outside the U.S.
Given the strong margins and momentum in electronic brokerage, Interactive Brokers is set up for success long term.
Looking forward
Trading volume and interest income from margin trading will swing up and down from quarter to quarter, but the positive for Interactive Brokers is that customers are flocking to its platform. As long as the company is adding customers with assets in their accounts, the business will be on an upward trajectory, and that's exactly what we're seeing to start 2018.
