Interactive Brokers Group (IBKR +3.20%) continues to provide one of the most popular discount trading platforms for fund managers, and the company has become increasingly popular among retail investors as well. Full-year 2015 results reported after the market closed on Tuesday show strong growth in accounts and customer equity.
But growth has come at a price. Customers are trading less per account and paying less for each trade they make, leaving the company with slower growth than you might expect. Here are the important numbers from the fourth quarter and fiscal 2015.
High-level numbers
| Period |
Total Revenue |
Net Income |
Earnings Per Share |
|---|---|---|---|
|
Q4 2015 |
$289 million +26% |
$17 million +113% |
$0.25 +108% |
|
2015 |
$1.26 billion +13% |
$49 million +9% |
$0.78 +1% |
Source: Company earnings report.
Electronic brokerage growth continues
In the electronic brokerage business at the heart of Interactive Brokers, investors want to see increases in accounts, customer equity, and trades. On all three fronts, 2015 was a great year, although Q4 slowed down a bit.
Customer accounts grew 18% year-over-year to 331,000 in the quarter, while equity in those accounts grew 19% to $67.4 billion.
On the trading front, 2015 saw growth, but the fourth quarter was weaker year-over year. I've laid out below the changes in volume for options, futures, and stocks for the full year and the quarter.
| Asset Type |
Trading Volume 2015 vs. 2014 |
Trading Volume Q4 2015 vs. Q4 2014 |
|---|---|---|
|
Options |
+8% |
-6% |
|
Futures |
+17% |
-5% |
|
Stocks |
+12% |
-7% |
Source: Company earnings report.
Making the late-2015 decline in volume worse, trading revenue was weaker on a per customer basis. Commissions per Daily Average Revenue Trade, or DART, fell 11% to $3.81 as average trade size dropped. The average account generated $3,239 -- 11% less than a year ago. Part of this decline is attributable to the rising dollar, something no U.S. company can get around right now.
In total, electronic brokerage revenue fell 16% in the fourth quarter to $219 million, and income before taxes dropped 32% to $113 million. These figures can be volatile quarter to quarter, so investors should take them with a bit of a grain of salt, but if Interactive Brokers begins attracting more customers who trade less, it changes the company's revenue profile long term.
Market making improves
The other major business for Interactive Brokers is market making, which can be highly volatile. The good thing for investors is that the market ended 2015 about were it started -- despite a couple of wild fluctuations -- so profits in market making were relatively stable.
Fourth-quarter market making revenue grew 30% from a year ago to $69 million, and segment income before taxes grew 80% to $27 million. For the full year, revenue grew 5% to $298 million, and income before taxes rose 14% to $130 million.
A solid 2015
Interactive Brokers had a solid year, though the numbers reflect both positives and negatives for investors. The number of customers using its platform and the amount of equity in their accounts grew nicely, which is what any brokerage is looking for. But Interactive Brokers is attracting less-active customers, which is why revenue and earnings are growing more slowly than customer accounts.
At the end of the day, core growth was solid for Interactive Brokers in 2015, and the negatives in operations should be short-lived.
