Author Topic: IBKR - Interactive Brokers  (Read 168933 times)

KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #200 on: February 03, 2016, 07:04:48 AM »
Schwab has many merits that IBKR doesn't have. Most notably, Schwab's revenue model is much more sensitive to rising interest rates. So Simpson and Greenberg are probably betting that current earnings don't represent the true earning power.

IBKR is a bet on the lowest cost provider with a strong moat in a niche market growing 15% per year.

If you look at a pie chart showing revenue distribution, you will see that they are two very different businesses.


yitech

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Re: IBKR - Interactive Brokers
« Reply #201 on: February 03, 2016, 07:24:49 AM »
Schwab has many merits that IBKR doesn't have. Most notably, Schwab's revenue model is much more sensitive to rising interest rates. So Simpson and Greenberg are probably betting that current earnings don't represent the true earning power.

IBKR is a bet on the lowest cost provider with a strong moat in a niche market growing 15% per year.

If you look at a pie chart showing revenue distribution, you will see that they are two very different businesses.

Just to add to that. SCHW deposit has been growing rapidly in the last few years. Bank deposit was up 26% YoY. More low-cost funding, but I guess it means nothing if interest rates don't rise. True earning power could stay low for a while.

valuefinder0525

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Re: IBKR - Interactive Brokers
« Reply #202 on: February 03, 2016, 06:16:54 PM »
Anyone have any thoughts on the successor for the Peterffy? Milan Galik

KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #203 on: February 12, 2016, 09:54:24 AM »
Anyone have Goldman Sach's reports on IBKR?

--

I'm having a hard time understanding consensus estimate of $1.53 for 2016.

2015 was hit with a number of large items, that could be considered "one-time" costs.

Reported Earnings: $415
Currency Effects: 206
Swiss Franc Bad Debt: 119
Mark-to-market on Short Term Treasuries: 33
Adjusted Earnings: 773
Adjusted EPS: $1.90
Reported EPS: $0.78
Adjusted PE (ttm): 16.4

--
So far this year:
US Dollar is down, so currency effects could reverse
Treasuries are up, so mark-to-market losses could reverse
Bad debt - unknowable, but likely to reverse unless the Yuan is broken
Volatility and trading up
Margin debt and equity per account will be down
Client accounts will be up
Fed rates +0.25%

--
How is sell-side modelling the currency impact? What am I missing? Am I crazy to think that currency impact could actually be positive this year?

KJP

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Re: IBKR - Interactive Brokers
« Reply #204 on: February 12, 2016, 11:09:57 AM »
Anyone have Goldman Sach's reports on IBKR?

--

I'm having a hard time understanding consensus estimate of $1.53 for 2016.

2015 was hit with a number of large items, that could be considered "one-time" costs.

Reported Earnings: $415
Currency Effects: 206
Swiss Franc Bad Debt: 119
Mark-to-market on Short Term Treasuries: 33
Adjusted Earnings: 773
Adjusted EPS: $1.90
Reported EPS: $0.78
Adjusted PE (ttm): 16.4

--
So far this year:
US Dollar is down, so currency effects could reverse
Treasuries are up, so mark-to-market losses could reverse
Bad debt - unknowable, but likely to reverse unless the Yuan is broken
Volatility and trading up
Margin debt and equity per account will be down
Client accounts will be up
Fed rates +0.25%

--
How is sell-side modelling the currency impact? What am I missing? Am I crazy to think that currency impact could actually be positive this year?

Are the amounts you're adding back pre-tax number or post-tax numbers?  For example, I see the reference to $119 million in the Q4 press release, but is that after the tax benefit from the loss, or before it?

As for the currency issue, I suspect it's anybody's guess how the dollar will do against the GLOBAL basket.  I don't know what sell-side models are forecasting.


KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #205 on: February 12, 2016, 11:20:47 AM »
Anyone have Goldman Sach's reports on IBKR?

--

I'm having a hard time understanding consensus estimate of $1.53 for 2016.

2015 was hit with a number of large items, that could be considered "one-time" costs.

Reported Earnings: $415
Currency Effects: 206
Swiss Franc Bad Debt: 119
Mark-to-market on Short Term Treasuries: 33
Adjusted Earnings: 773
Adjusted EPS: $1.90
Reported EPS: $0.78
Adjusted PE (ttm): 16.4

--
So far this year:
US Dollar is down, so currency effects could reverse
Treasuries are up, so mark-to-market losses could reverse
Bad debt - unknowable, but likely to reverse unless the Yuan is broken
Volatility and trading up
Margin debt and equity per account will be down
Client accounts will be up
Fed rates +0.25%

--
How is sell-side modelling the currency impact? What am I missing? Am I crazy to think that currency impact could actually be positive this year?

Are the amounts you're adding back pre-tax number or post-tax numbers?  For example, I see the reference to $119 million in the Q4 press release, but is that after the tax benefit from the loss, or before it?

As for the currency issue, I suspect it's anybody's guess how the dollar will do against the GLOBAL basket.  I don't know what sell-side models are forecasting.

It isn't clear if these are pre or post tax.

KJP

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Re: IBKR - Interactive Brokers
« Reply #206 on: February 12, 2016, 12:03:03 PM »
Is part of the issue that common stockholders to not get attributed net income that is proportional to their ownership interest in IBG LLC?  For example, common shareholders have a 15.7% interest in IBG LLC and EPS is calculated based on that number of shares, but they were attributed only 11.8% of net income in 2015 (49/415). 

That is why your adjusted EPS number more than doubles even though your adjusted income number does not.   

KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #207 on: February 12, 2016, 01:08:26 PM »
Is part of the issue that common stockholders to not get attributed net income that is proportional to their ownership interest in IBG LLC?  For example, common shareholders have a 15.7% interest in IBG LLC and EPS is calculated based on that number of shares, but they were attributed only 11.8% of net income in 2015 (49/415). 

That is why your adjusted EPS number more than doubles even though your adjusted income number does not.

Yes, that makes a big difference. Thanks. It is not immediately clear why the economic interest and the net income attribution are so different. Presumably, this is because the common shareholders are responsible for more tax? But I can't find an explicit disclosure on this attribution. Actually, I can and it contradicts the income statement:

"Our share of IBG LLC’s net income, excluding Holdings’ noncontrolling interest, for 2014 was approximately 14.0% and similarly, outstanding shares of our common stock represent approximately 14.5% of the outstanding membership interests of IBG LLC." 2014 annual report.

But this isn't true. Only 10% of Net Income is attributed to common shareholders.

--
I have asked IR for clarification.
« Last Edit: February 12, 2016, 01:24:27 PM by KCLarkin »

KJP

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Re: IBKR - Interactive Brokers
« Reply #208 on: February 12, 2016, 01:49:23 PM »
Is part of the issue that common stockholders to not get attributed net income that is proportional to their ownership interest in IBG LLC?  For example, common shareholders have a 15.7% interest in IBG LLC and EPS is calculated based on that number of shares, but they were attributed only 11.8% of net income in 2015 (49/415). 

That is why your adjusted EPS number more than doubles even though your adjusted income number does not.

Yes, that makes a big difference. Thanks. It is not immediately clear why the economic interest and the net income attribution are so different. Presumably, this is because the common shareholders are responsible for more tax? But I can't find an explicit disclosure on this attribution. Actually, I can and it contradicts the income statement:

"Our share of IBG LLC’s net income, excluding Holdings’ noncontrolling interest, for 2014 was approximately 14.0% and similarly, outstanding shares of our common stock represent approximately 14.5% of the outstanding membership interests of IBG LLC." 2014 annual report.

But this isn't true. Only 10% of Net Income is attributed to common shareholders.

--
I have asked IR for clarification.

I remember this issue being discussed elsewhere and found it in the comments to a post on Punchcard's blog.  Here's what IR told him:

I asked: Per page 53 of the 2013 Form 10-K,IBG is entitled to 12.4% of the net income of LLC. But, per the income statement, IBG earned consolidated net income of 417M and the portion allocated to the common shareholders was 37M or 8.86%. Can you please explain why the common shareholders earned 8.86% of net income rather than 12.4%?
They responded:
Andrew,
Thanks for your email and interest in Interactive Brokers.
You cannot recalculate the 12.4% from our income statement because net income attributable to common shareholders for 2013 was 12.4% of IBG LLC’s net income. However, you’re looking at a consolidated income statement which includes IBG LLC in addition to IBG, Inc.
I hope that clarifies things and let me know if you have any questions.
Best regards,
Deborah Belevan, CPA
Director of Investor Relations, Institutional Sales
Interactive Brokers
8 Greenwich Office Park | Greenwich, CT 06831
Phone: (203) 618-5987
debbie@interactivebrokers.com

I don't fully understand what IR is saying, but it sounds like there is a layer of expense that is buried in one of the entities that is wholly owned by the common.

EDIT:  There must be, at a minimum, public company expenses that are borne only by IBG, Inc., the listed entity.  I have not calculated how these expenses have changed over time.
« Last Edit: February 12, 2016, 01:55:10 PM by KJP »

KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #209 on: February 14, 2016, 11:45:39 AM »
You cannot recalculate the 12.4% from our income statement because net income attributable to common shareholders for 2013 was 12.4% of IBG LLC’s net income. However, you’re looking at a consolidated income statement which includes IBG LLC in addition to IBG, Inc.

Thanks. I will try to clarify with IR. It is important to know whether these corporate level expenses are variable (e.g. taxes) or fixed (public company expenses).

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I'm surprised by the magnitude of currency effects on reported earnings. The earnings hit from currency alone was 22% of reported REVENUE. Kudos to Petterfy for avoiding non-GaaP earnings. But anyone relying on reported earnings will miss the underlying earnings power and growth of the broker business.