Author Topic: IBKR - Interactive Brokers  (Read 164428 times)

KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #230 on: June 26, 2016, 07:14:22 AM »
Excluding those, the earnings have been flat, which customer accounts grow by 17-20% a year. Does anyone know why?

Based on my estimates for normalized earnings, broker pre-tax earnings have grown at 28% CAGR over the last 10 years.

(note: that disclosure was limited in earlier years so there is a wide margin of error here)

The biggest culprit is the market maker. This is a volatile melting ice cube. So you need to value the broker and market maker separately. Fortunately, the market maker is now a very small part of the business.



kab60

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Re: IBKR - Interactive Brokers
« Reply #231 on: June 26, 2016, 08:41:51 AM »
When valuing this thing I also think one has to keep in mind they could easily increase profitability by raising prices. I don't think it will happen, the CEO said it in a sarcastic way on a recent conference call; we don't want to be like Oracle. From the perspective of increasing shareholder value I suppose it's wise considering they almost doubled accounts organically in 3 years. I suppose those accounts are very sticky. Anyone actually know what the "churn" is? I still don't have a position but keep getting interested below 35/share. My concern is how much a bear market would impact operations (profitability) as well as overall valuation.

muscleman

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Re: IBKR - Interactive Brokers
« Reply #232 on: June 26, 2016, 11:17:21 AM »
I have taken some study on IBKR. I found that each year they have customer bad debts and currency fluctuations as one time gain/losses. Excluding those, the earnings have been flat, which customer accounts grow by 17-20% a year. Does anyone know why?

Another concern: Their class A share count grows by about 7% a year. That's quite a dilution.
Their marketmaker business has historically been their golden goose, but not so much today. Earnings from MM have plummeted in recent years, dragging down overall profitability and somewhat masking the growth from brokerage. That might be it?

I see total sharecount rising from 400m in 2007 to 408m in recent Q.


https://www.sec.gov/Archives/edgar/data/1381197/000104746916010549/a2227422z10-k.htm#da17001_item_1._business

Maybe I misunderstood this corp structure graph on page 4?

The real business is in IBG LLC at the bottom of the graph.
Public shareholders own 100% economic interest in IBG, the publicly traded holding company, whose primary asset is 15.7% of IBG LLC.

Thomas Peterffy owns 86.4% of IBG LLC.

Therefore when new shares are issued, only the public shareholders get diluted.  :o
I am muslceman. I have more muscle than brain!

frommi

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Re: IBKR - Interactive Brokers
« Reply #233 on: June 26, 2016, 11:26:38 AM »
I have taken some study on IBKR. I found that each year they have customer bad debts and currency fluctuations as one time gain/losses. Excluding those, the earnings have been flat, which customer accounts grow by 17-20% a year. Does anyone know why?

Another concern: Their class A share count grows by about 7% a year. That's quite a dilution.
Their marketmaker business has historically been their golden goose, but not so much today. Earnings from MM have plummeted in recent years, dragging down overall profitability and somewhat masking the growth from brokerage. That might be it?

I see total sharecount rising from 400m in 2007 to 408m in recent Q.


https://www.sec.gov/Archives/edgar/data/1381197/000104746916010549/a2227422z10-k.htm#da17001_item_1._business

Maybe I misunderstood this corp structure graph on page 4?

The real business is in IBG LLC at the bottom of the graph.
Public shareholders own 100% economic interest in IBG, the publicly traded holding company, whose primary asset is 15.7% of IBG LLC.

Thomas Peterffy owns 86.4% of IBG LLC.

Therefore when new shares are issued, only the public shareholders get diluted.  :o

No, every time they issue new shares they increase the ownership interest so that there is no dilution.

cmlber

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Re: IBKR - Interactive Brokers
« Reply #234 on: June 26, 2016, 12:14:01 PM »
When valuing this thing I also think one has to keep in mind they could easily increase profitability by raising prices. I don't think it will happen, the CEO said it in a sarcastic way on a recent conference call; we don't want to be like Oracle. From the perspective of increasing shareholder value I suppose it's wise considering they almost doubled accounts organically in 3 years. I suppose those accounts are very sticky. Anyone actually know what the "churn" is? I still don't have a position but keep getting interested below 35/share. My concern is how much a bear market would impact operations (profitability) as well as overall valuation.

Are customers really "sticky"?  People are choosing IBKR because it has the lowest prices in the industry, not because of some affinity for the brand.  So they're only sticky to the extent that nobody else could possibly offer prices as low as IBKR. 

scorpioncapital

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Re: IBKR - Interactive Brokers
« Reply #235 on: June 26, 2016, 12:19:25 PM »
I think the real wealth for IB would come from becoming a semi-bank having banking features for brokerage clients like Schwab and also from better margin lending and higher interest rates will definitely help -when and if they occur. While daytrading in and out for $1 per trade is a nice little game, it implies your customers are casino customers. Really one might even look to casinos as a model for online brokers! They come to gamble, some make money, most lose, pay the house a commission... but the casinos have realized they need other streams of income like hotel rooms, buffets, shows, etc.. I see IB always adding more products, features, etc,, but all are like those brochures and seminars that teach you how to play blackjack, they are feeding the short-term trading machine.
« Last Edit: June 26, 2016, 12:21:36 PM by scorpioncapital »

gfp

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Re: IBKR - Interactive Brokers
« Reply #236 on: June 26, 2016, 12:20:46 PM »
Re: "Are customers really "sticky"?  People are choosing IBKR because it has the lowest prices in the industry, not because of some affinity for the brand.  So they're only sticky to the extent that nobody else could possibly offer prices as low as IBKR. "

It's not just price, but market access and technology as well.  If an advisor is set up with IB it is a fairly sticky relationship.  Most traders grow to like the platform over time after initially being a bit bewildered by the trader workstation java app.  Other brokers have seen IB's offering for over a decade now, and nobody seems much interested in offering direct access to more than a couple foreign markets or IB's pricing.

Haasje

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Re: IBKR - Interactive Brokers
« Reply #237 on: June 26, 2016, 01:04:51 PM »
I don't think casinos are making money on the hotel rooms

DTEJD1997

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Re: IBKR - Interactive Brokers
« Reply #238 on: June 26, 2016, 01:10:25 PM »
I don't think casinos are making money on the hotel rooms
Most casinos most assuredly make money on the hotel rooms...

In Detroit, Casino hotels have $150+ rates for non-weekend days.  MGM Grand's cheapest rate is $239 on a Tuesday night for their entry level room.

Schwab711

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Re: IBKR - Interactive Brokers
« Reply #239 on: June 26, 2016, 02:17:11 PM »
How does IBKR offer such low margin rates, relatively? Does anyone know their largest exposure?