Interactive Brokers (NYSEMKT:IBKR) reported worse-than-expected earnings per share and revenue on a comprehensive basis when it shared third-quarter results on Tuesday, but its core brokerage business was in line with expectations. Here's what investors need to know.
The company's comprehensive diluted earnings per share during Q3 was $0.23, up from a $0.13 loss in the year-ago quarter but below a consensus analyst estimate for about $0.32 per share. Reported revenue was $359 million, up from revenue of $171 in the year-ago quarter, but below a consensus analyst estimate for $367 million.
But investors following Interactive Brokers understand it's important to also separate out the company's core business from its other comprehensive income, or OCI, to get a look at the company's business from a different angle. Interactive Brokers' OCI is mostly represented by the effects of the company's currency diversification strategy.
Looking at Interactive Brokers' EPS excluding OCI, the company posted healthy growth, with Q3 EPS excluding OCI at $0.35, up from $0.05 in the year-ago quarter. These ex-OCI results were about in line with expectations.
And separating out net revenues for Interactive Brokers' electronic brokerage, the top line for the company's core segment increased 22.4%.
Isolating the company's core operating results by excluding currency effects, Interactive Brokers' results were as follows:
- Net revenues were up 32%, year over year.
- Pre tax income increased 41%, year over year.
- Pre tax profit margin increased from 55% in the year-ago quarter to 59% in Q3 2015.
- Diluted EPS increased from $0.24 to $0.37.
Other tidbits worth noting from the earnings report:
- Margin. Interactive Brokers' pre-tax profit margin was 61%, down from 63% in the year-ago quarter. The decrease was primarily due to currency movements, Interactive Brokers CFO Paul Brody said during the company's earnings call.
- Customer equity. Interactive Brokers management watches customer equity closely, as it's in the brokerage's best interest for its customers to grow their assets. Customer equity during the quarter fell from $66 billion at the end of Q2 to $62.1 billion at the end of Q3, or 5.9%. This reflects a market decline between these two periods.
Year over year, Interactive Brokers' customer equity increased 13%.
- Customer accounts. Perhaps the most important number in understanding how well Interactive Brokers is tapping into potential long-term business upside amid market volatility is customer accounts. During Q3, Interactive Brokers' customer accounts growth continued to be robust, up 18% year over year and about 4% sequentially. Notably, the year-over-year growth in customer accounts is as strong as the broker's year-over-year growth reported in Q2.
- DARTs growth. A key metric for investors to watch for gaining insight into the company's customer base is the broker's daily average revenue trades, which are based on customer orders. Interactive Brokers' DARTs increased 28% from the year-ago quarter and 11% sequentially. This year-over-year growth beats Q2 year-over-year DART growth of 16%.
A muted market response in after-market hours on Tuesday reflects investors' expectations for Interactive Brokers to continue to grow its core brokerage business, as this is exactly what the company continues to do.