Please ensure Javascript is enabled for purposes of website accessibility

Trading Slows for Interactive Brokers Group

By Travis Hoium – Updated Apr 18, 2019 at 4:23PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Customers continue to flock to Interactive Brokers, but they're not trading as much as hoped.

The volume of active trades being placed on Interactive Brokers Group's (IBKR 1.64%) platform fell in the first quarter, and that drove somewhat underwhelming results for the company. Earnings did rise because of a one-time gain, but the underlying business isn't churning out strong fundamentals like it once was. 

The headline was a slowdown in trading, but as usual, there's more to Interactive Brokers' results than the headlines -- so let's dig into what the quarter looked like for the electronic brokerage. 

Worker trading at a desk.

Image source: Getty Images.

Interactive Brokers Group Inc: The raw numbers

Metric Q1 2019 Q1 2018 Year-Over-Year Change
Sales $558 million $527 million  5.9% 
Net income $49 million  $46 million  6.5% 
Diluted EPS $0.64  $0.63  1.6% 

Data Source: Interactive Brokers Group Inc Q4 2018 earnings release. 

What happened with Interactive Brokers Group this quarter? 

Rising revenue and earnings hide some of the slowdown we're seeing in trading, but are often shaped by one-time events. It's important for investors to keep an eye on fundamental metrics like brokerage account equity and trading volume and where they're trending. Here's a breakdown of segments and their operating metrics

  • Electronic brokerage revenue fell 2% to $456 million on lower commission revenue. Segment income before taxes fell 14% to $250 million. 
  • Customer accounts grew by 21% to 623,000 and customer equity rose 14% to $147.6 billion. These metrics usually give investors a feel for where revenue will trend, but a 10% drop in total daily active revenue trades (DARTs) to 848,000 led to a decline in revenue. Below, I'll cover why this decline took place. 
  • Market making segment income before taxes fell 33% to $6 million as Interactive Brokers wound down the business. 
  • A $103 million gain was recorded after Tiger Brokers went public. This is a mark to market gain, and the value has not yet been realized. 
  • A $42 million loss was taken on customer accounts that went into deficit on margin trades. 

What management had to say

Management said a limit on microcap stock trades impacted trading volume. CEO Thomas Peterffy said in a statement:

Unfortunately, we've been unable to obtain clear regulatory guidance that would allow us to automate the compliance process rather than reviewing each security and each trade manually. Until that time we have chosen to limit our support for microcap securities on our platform. Growth in DARTs generally goes hand-in-hand with account growth. And as you know, our account growth had been impacted by the difficulty our mainland Chinese customers are experiencing in trying to fund their accounts.

If regulatory guidance is given, we could see trades jump, but that's not what happened in the first-quarter earnings report. 

Looking Forward

Growing customer accounts and equity are positive for Interactive Brokers and should drive growth long-term. But the impact of conservative microcap trading policies have hurt earnings and could be a drag on results in 2019. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool recommends Interactive Brokers. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Interactive Brokers Stock Quote
Interactive Brokers
IBKR
$79.80 (1.64%) $1.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
351%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.