Why Interactive Brokers Group, Inc. Popped Today

Is this meaningful? Or just another movement?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Apr 16, 2014 at 1:08PM
Financials

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of electronic broker and market maker Interactive Brokers Group (NYSEMKT:IBKR) climbed 10% on Wednesday after its quarterly results topped Wall Street expectations.

So what: The stock had pulled back sharply in January on concerns over slowing growth, but today's Q1 results -- income jumped 189% on a revenue surge of 64% -- are quickly easing those worries. In fact, Interactive's customer accounts grew 16% while its pretax profit margin expanded to 61% (versus just 38% in the year-ago period), giving analysts plenty of good vibes over its profitability going forward.

Now what: Don't expect Interactive's operating momentum to slow anytime soon. "With the growing customer asset base, we believe we are well positioned to benefit from a rise in interest rates," said CFO Paul Brody in a conference call with analysts. "Based on current balances, we estimate that a general rise in overnight interest rates of 25 basis points would produce an additional $55 million in net interest income annually. Further increases in rate would produce smaller gains, because the interest we pay to our customers is tied to benchmark rates versus narrow spreads." More importantly, with Interactive shares still off about 10% from its 52-week highs and sporting a near-2% dividend yield, there might be some decent upside left to bet on that outlook.