On Mar 24, Interactive Brokers Group, Inc. IBKR was upgraded to a Zacks Rank #3 (Hold). Effective cost management and impressive performance of the Electronic Brokerage segment continued to be the positives, while a pressured top-line remained the undermining factor.
Interactive Brokers’ technological excellence positions it as one of the low cost providers of broker-dealer services, thereby giving it a competitive edge over others. Moreover, this technical superiority enables it to rapidly adjust its systems in order to comply with various trading restrictions imposed by the Securities and Exchange Commission (“SEC”). Further, the company has a very low level of compensation expense relative to net revenue, also due to its technological pre-eminence.
Interactive Brokers’ prudent cost management is reflected in the 14% year-over-year decline in non-interest expenses in 2014. This helped the company to record an earnings beat in the last quarter. Moreover, the company’s efforts to return capital to shareholders in the form of regular dividends continue to boost investors’ confidence. This is reflected in a 20.7% rise in share price since the latest earnings release.
On the flipside, the 3% year-over-year fall in net revenue in 2014 demonstrated subdued revenue generation. The dismal performance of the Market Making segment contributed to the declining revenues. Further, the irregular movement in daily average revenue trades (DARTs) will likely keep the top line under strain in the upcoming quarters.
Though Interactive Brokers’ better-than-peer positioning, adoption of technology and optimization of resource allocation on global electronic networks are expected to assist in future development, escalating competitive environment and increasing volatility will keep the Market Making segment’s performance under pressure, in turn weighing on the company’s profitability.
This can also be observed in the Zacks Consensus Estimate for 2015 and 2016, which remained flat over the last 30 days.
Better-ranked investment brokers worth considering include BGC Partners, Inc. BGCP, Cowen Group, Inc. COWN and Stifel Financial Corp. SF. All these stocks hold a Zacks Rank #2 (Buy).
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