What happened
Shares of Interactive Brokers (IBKR +0.95%) rose 18.7% during the month of July, according to data from S&P Global Market Intelligence. The discount broker continued to rack up new customers despite increased competition in the space over the past year.
IBKR's daily average revenue trades (DARTs) have surged amid market volatility this year, more than doubling over the prior year, leading to Interactive Brokers beating analyst expectations for revenue and earnings per share in its July earnings report.
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So what
During the June quarter, Interactive Brokers DARTs surged a whopping 111% compared to the prior year, much higher than overall customer account growth of 36%. While those seem like blockbuster numbers, Interactive Brokers actually makes a large portion of revenue and profits from margin lending. A combination of lower interest rates and 3% total lower margin loans led to a 24% decrease in net interest income, yielding to revenue increasing by "only" 30.5%
Operating profits were also flat, as Interactive Brokers took an additional $104 million charge to settle contracts for customers that were affected when West Texas Intermediate oil contracts fell to an unprecedented negative $37.63 in April. That extra charge actually led to operating income falling slightly during the quarter; however, without that charge, operating income would have been up 44.9%.
Now what
While a lot of attention has gone to Robinhood and other new-age trading apps, Interactive Brokers continues to have extremely low commission rates as well as the lowest margin loan rates in the business, which continues to lure in customer accounts at a rapid pace. While market volatility and interest rates should even out over time, Interactive Brokers' competitive advantages in technology should continue to attract more customers, which should benefit this growth stock over the long term.
