Author Topic: IBKR - Interactive Brokers  (Read 169317 times)

muscleman

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Re: IBKR - Interactive Brokers
« Reply #280 on: December 02, 2016, 08:14:02 AM »
Continued strong growth: https://investors.interactivebrokers.com/ir/main.php#

I'm mostly interested in number of accounts opened, and it was the highest so far this year (50 pct. higher than same Q last year). Darts (which fluctuates a lot) was also strong. I bought because of the long term growth potential, but I like the near term boost from higher rates and what I expect to be higher volatility following Trump (not sure on the last point, but I expect him to say a lot of crazy shit that will leave the market confused).

Adjusted P/E ratio around 30-35. Growth 20%. Seems too expensive to me.
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KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #281 on: December 02, 2016, 08:32:05 AM »
Adjusted P/E ratio around 30-35. Growth 20%. Seems too expensive to me.

What assumptions are you using for adjusted P/E ratio?

One of the key questions is the value of the market maker business. I've assumed they can sell the market maker at a decent price, so the broker as a standalone business is probably closer to 25x. But it is pretty clear that Petterffy would keep the proceeds of any sale in the e-broker. So IBKR mightl be 30x if they sell market maker. But IBKR will also have excess cash, so would be cheaper if evaluated ex-cash or using enterprise value.

Travis Wiedower

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Re: IBKR - Interactive Brokers
« Reply #282 on: December 02, 2016, 09:21:35 AM »
The two main metrics I track on a monthly basis are account growth and average commission per cleared order. Account growth has been in line with what I expected, but average commissions has tracked better than what it was looking like early in the year.

Anyway, my math is closer to 22x for the broker on an EV basis, which I think is cheap. That includes several "normalizing" adjustments though. No two people are going to have the same valuation for IBKR with so many moving pieces. It really comes down to how high quality of a business you believe IBKR is and less about whether it's trading for 20x or 25x.
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Spekulatius

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Re: IBKR - Interactive Brokers
« Reply #283 on: December 02, 2016, 09:30:48 PM »
Adjusted P/E ratio around 30-35. Growth 20%. Seems too expensive to me.

What assumptions are you using for adjusted P/E ratio?

One of the key questions is the value of the market maker business. I've assumed they can sell the market maker at a decent price, so the broker as a standalone business is probably closer to 25x. But it is pretty clear that Petterffy would keep the proceeds of any sale in the e-broker. So IBKR mightl be 30x if they sell market maker. But IBKR will also have excess cash, so would be cheaper if evaluated ex-cash or using enterprise value.

The market maker will never be sold, it will be liquidated. i think it will never be sold, because the MM trading platform is probably very similar to the brokerage platform, hence selling this business would also give away their competitive advantage for the brokerage platform. I think they will just slowly liquidate the MM business by pulling capital out of it.
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KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #284 on: December 02, 2016, 11:08:27 PM »
The market maker will never be sold, it will be liquidated. i think it will never be sold, because the MM trading platform is probably very similar to the brokerage platform, hence selling this business would also give away their competitive advantage for the brokerage platform. I think they will just slowly liquidate the MM business by pulling capital out of it.

I agree. But Petterffy seems to disagree.

KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #285 on: December 07, 2016, 01:55:07 PM »
The market maker will never be sold, it will be liquidated. i think it will never be sold, because the MM trading platform is probably very similar to the brokerage platform, hence selling this business would also give away their competitive advantage for the brokerage platform. I think they will just slowly liquidate the MM business by pulling capital out of it.

I agree. But Petterffy seems to disagree.

Slight update. According to @Moat6ixCap:

Quote
Peterffy: leery of selling market maker cuz spreads could widen out for clients. leaning towards JVing it

Source: https://twitter.com/Moat6ixCap/status/806538078269636608

muscleman

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Re: IBKR - Interactive Brokers
« Reply #286 on: December 07, 2016, 05:34:46 PM »
Adjusted P/E ratio around 30-35. Growth 20%. Seems too expensive to me.

What assumptions are you using for adjusted P/E ratio?

One of the key questions is the value of the market maker business. I've assumed they can sell the market maker at a decent price, so the broker as a standalone business is probably closer to 25x. But it is pretty clear that Petterffy would keep the proceeds of any sale in the e-broker. So IBKR mightl be 30x if they sell market maker. But IBKR will also have excess cash, so would be cheaper if evaluated ex-cash or using enterprise value.

Consumer bad debt 146 loss and Other income (loss) 122, which is mostly foreign currency fluctuations. Assume some random 20 bad debt per year for the long term, to be fair for the broker business.
So if I add these two back to earnings before tax, I got 458+122+146-20=706. The tax rate seems 10% so earnings after tax should be around 630.

That makes EPS to be around 1.2.

The stock price is around $37 so that's a 30x.

This year's earnings is less than last year due to less trading volume, but I think that's temporary.
I am muslceman. I have more muscle than brain!

KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #287 on: December 08, 2016, 07:39:37 AM »
Consumer bad debt 146 loss and Other income (loss) 122, which is mostly foreign currency fluctuations. Assume some random 20 bad debt per year for the long term, to be fair for the broker business.
So if I add these two back to earnings before tax, I got 458+122+146-20=706. The tax rate seems 10% so earnings after tax should be around 630.

I don't think your calculations are accurate. Specifically, the tax rate is artificially low because the LLC doesn't pay taxes (this is passed through to the Limited Partners). I think you need to use a 35% tax rate to accurately calculate the earnings that flow through to common share holders.

Oddly, we aren't far off on EPS though. I'd add back the treasury mark-to-market losses (gains). And I think $20M is too high for bad debt. This must net out your underestimate for taxes.

glorysk87

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Re: IBKR - Interactive Brokers
« Reply #288 on: January 10, 2017, 11:40:45 AM »
sumzero put up a random poll today and the results indicate that IBKR is the clear favorite among investors (see attached screenshot)

Travis Wiedower

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Re: IBKR - Interactive Brokers
« Reply #289 on: January 10, 2017, 11:51:32 AM »
Given that includes large funds that have access to the big banks, that's quite impressive. Anecdotally, the majority of small fund managers I know use Interactive Brokers. And the ones who don't still admit that IBKR offers the best pricing but they chose someone else based on service/cap intro/etc.
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