Interactive Brokers (NASDAQ:IBKR), the leading electronic broker, has seen a 23% increase in its stock year-to-date, outperforming the S&P 500's 11% rise. The company disclosed this information following its second-quarter earnings report released earlier this week. Despite missing on EPS by $0.08 and on revenue by $57 million, the firm's commissions per trade rose to $3.11 from $2.74 YoY, driven by improved trading because options command higher commissions.
The firm also revealed a recent expansion of its overnight trading to over 10,000 US Stocks and ETFs. It experienced a decrease in daily average revenue trades by 12% YoY, with stock trading volumes falling by 28% YoY and futures falling by 4%. Still, option volume saw a positive turn, rising by 9% YoY.
Interactive Brokers has made a name for itself with a unique approach to brokerage services. Unlike many competitors who attract clients with $0 commission trades, IBKR offers access to over 150 electronic exchanges, 25 currencies, futures, and more - a service most other online brokers can't provide.
The company's client base is composed of both retail traders (55%) and institutional clients (45%), which differs from other online brokers like Robinhood (NASDAQ:HOOD), E-Trade, TD (TSX:TD) Ameritrade, and Charles Schwab (NYSE:SCHW) that cater mostly to retail traders. The company's low margin rate and platform efficiency have helped retain these active trading clients.
The company's proprietary technology coupled with low-cost execution has led to one of the industry's lowest cost structures. This allows Interactive Brokers to offer clients low-margin rates and higher rates on uninvested cash. According to InvestingPro data, the company has a market cap of $36.74B and a P/E ratio of 17.45, indicating its profitability.
Interactive Brokers is set to benefit from the Federal Reserve's decision to raise rates, planning to keep them higher for longer (5.1% by the end of 2024). IBKR's 4.83% interest on uninvested cash is higher than most peers and banks, encouraging clients to hold more cash in their brokerage accounts.
The company, established in 1977, operates in over 150 electronic exchanges and market centers in 33 countries, dealing in 26 currencies. It ended the second quarter of 2023 with approximately 2.29 million clients spread across more than 200 countries and territories.
Interactive Brokers was recently ranked sixth in Traders Union's evaluation of investment platforms, scoring a commendable 7.75 out of 10. The company's robust regulatory backing from authorities like the US Securities and Exchange Commission (US SEC), the US Financial Industry Regulatory Authority (FINRA), and the UK Financial Regulatory Authority (FCA) earned it a high score of 9.40 out of 10 in the regulation and safety category.
The firm faces potential risks from increased competition and regulations. Its low-cost structure and superior offerings compared to peers position it well for continued success in the competitive brokerage industry. InvestingPro Tips highlight that Interactive Brokers has high earnings quality, with free cash flow exceeding net income, and its revenue growth has been accelerating. The company's strong earnings should allow management to continue dividend payments, a trend they've maintained for 14 consecutive years. For more insights like these, visit InvestingPro's pro/pricing page.
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