Interactive Brokers stock drops as Q2 earnings miss estimates

abdelaziz Fathi

Interactive Brokers Group Inc. (IBKR) saw its stock decline by over 4% in after-hours trading following the release of its Q2 quarterly results that fell short of analysts’ expectations.

For the three months through June, the discount broker reported a net income of $601 million, or $1.20 per share, compared to $360 million, or 72 cents per share, in the same quarter last year. Adjusted net income was $1.32 per share.

Interactive Brokers posted a remarkable 52% increase in net revenue from the previous year while decreasing slightly by 2% on a quarterly basis. Revenue surged to $1 billion, up from $656 million a year ago, but was down when weighed against $1.04 billion in the first quarter.

Analysts had projected an average net earnings of $1.40 per share on revenue of $1.055 billion, making the reported results slightly below expectations. Despite this, shares of Interactive Brokers Group have seen a 19% increase year-to-date, aligning with the broader S&P 500 index.

This growth in revenue was largely led by a doubling of net interest income, reaching $694 million. Interactive Brokers’ low-duration investment portfolio strategy proved beneficial in the high-rate environment, offsetting flat commission revenue compared to the previous year. IBKR’s commission business was muted due to higher operating expenses and lower customer stock trading volume.

Despite headwinds from a push to the zero-fee trading craze, Interactive Brokers’ commission revenue unchanged from the year-ago quarter to $322 million. The flat performance was attributed to the customer’s mixed trading volume across product types with options contracts volume up 9% while futures contracts and stock share volumes decreased 3% and 28%, respectively.

The upbeat results for the quarter were driven by strong interest revenue, which jumped by 99 percent on a yearly basis. This was due to the aggressive interest rate hikes by the Federal Reserve and customer credit balances, partially offset by a decline in margin lending balances.

Under the other income section, Interactive Brokers booked $55 million in loss related to currency diversification strategy and its U.S. government securities portfolio. Interactive Brokers holds its cash reserves in different currencies to reflect its global operations, which include significant overseas segments.

In terms of its operational metrics, Interactive Brokers said its trading volumes took a step back in the first quarter, an indication that investor confidence is still fairly mixed over the past few months.

During June, Interactive Brokers saw 1.96 million daily average revenue trades, or DARTS, in June 2023 compared to 1.86 million transactions in the prior month. The figure is 5 percent higher on a monthly basis, but dropped by more than three percent from a year earlier.

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