Author Topic: IBKR - Interactive Brokers  (Read 164252 times)

glorysk87

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Re: IBKR - Interactive Brokers
« Reply #370 on: April 17, 2017, 12:24:29 PM »
Could be that the use of ETFs and passive management has lead to lower activity per account. Still believe that IBKR has a huge moat relative to the other brokers though.

Could be, sure. I just haven't heard a satisfactory answer to this question yet.

Just a little puzzling to me that the IBKR story seems very very very well understood at this point, yet every individual investor still believes it's mispriced in the market. In my experience, something that seems too good to be true (ie a "mispricing" that persissts for years) probably has something lurking in the shadows.


handycap5

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Re: IBKR - Interactive Brokers
« Reply #371 on: April 17, 2017, 12:30:06 PM »
If you spend time on IBKR, let me know what you conclude on the appropriate tax rate. I could never figure it out to a degree that I could get comfortable - though I know others have...

TwoCitiesCapital

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Re: IBKR - Interactive Brokers
« Reply #372 on: April 17, 2017, 12:48:27 PM »
Does anyone mind helping out an unenlightened peon with IBKR?

The company has maintained a position on my watchlist for quite some time, but I have thus far shied away from diving in deep. I reconsidered today and began researching in earnest.

However, I have a high level question:

Why has the massive growth in # of accounts and total client equity not translated into improved financial performance? Accounts have doubled since 2013 and client equity has almost tripled, yet revenue has only increased by ~30%.  Revenue per average account has been declining YoY for well over a year now.

Curious what the driver here is.

I would expect lower volatility leads to less trading

KJP

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Re: IBKR - Interactive Brokers
« Reply #373 on: April 17, 2017, 01:00:27 PM »
If you spend time on IBKR, let me know what you conclude on the appropriate tax rate. I could never figure it out to a degree that I could get comfortable - though I know others have...

Do you mean the difference between the public company's percentage ownership of the operating company and the amount of taxes allocated to the public company?

cmlber

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Re: IBKR - Interactive Brokers
« Reply #374 on: April 17, 2017, 01:06:28 PM »
If you spend time on IBKR, let me know what you conclude on the appropriate tax rate. I could never figure it out to a degree that I could get comfortable - though I know others have...

For public shareholders, it's basically a full US corporate tax payer.  Low 30s rate. 

KJP

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Re: IBKR - Interactive Brokers
« Reply #375 on: April 17, 2017, 01:15:17 PM »
If you spend time on IBKR, let me know what you conclude on the appropriate tax rate. I could never figure it out to a degree that I could get comfortable - though I know others have...

For public shareholders, it's basically a full US corporate tax payer.  Low 30s rate.

That's it.  The rest of the operating company is owned by a pass through entity, so the income taxes attributable to its ownership are not recorded anywhere in the financial statements.  You can see the reconciliation in footnote 11 of the 2016 annual report, which shows why the tax rate you get from dividing operating income by the recorded tax expense does not reflect the actual corporate tax rate attributable to the public company.

The public company also has some public company costs that it bears, which also pushes its net income lower than its proportional share of underlying operating income.

Travis Wiedower

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Re: IBKR - Interactive Brokers
« Reply #376 on: April 17, 2017, 02:24:09 PM »
For public shareholders, it's basically a full US corporate tax payer.  Low 30s rate. 

Low 30s is the answer I've come to as well.

glory,

I responded to your email, but TwoCitiesCapital brought up another important aspect that I forgot to mention. Low volatility in the markets has also pushed down trades per day per client.
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Spekulatius

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Re: IBKR - Interactive Brokers
« Reply #377 on: April 17, 2017, 04:41:40 PM »
For public shareholders, it's basically a full US corporate tax payer.  Low 30s rate. 

Low 30s is the answer I've come to as well.

glory,

I responded to your email, but TwoCitiesCapital brought up another important aspect that I forgot to mention. Low volatility in the markets has also pushed down trades per day per client.

Bear markets will lead to higher volatility and probably more trading and higher profits for IBKR, but likely the stock will be cheaper.

IBKR's profits basically went nowhere for 10 years or so, because the main profit generator at that time - the marketmaker faltered and the profits were replaced by brokerage segment, leading to more or less flat overall profits.
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roark33

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Re: IBKR - Interactive Brokers
« Reply #378 on: April 17, 2017, 05:29:06 PM »
Another reasons for lower trading per account is the early accounts signing up for IB had a heavy algo/trading bent and each additional account has far lower turnover. 

KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #379 on: April 17, 2017, 05:44:12 PM »
Why has the massive growth in # of accounts and total client equity not translated into improved financial performance? Accounts have doubled since 2013 and client equity has almost tripled, yet revenue has only increased by ~30%.  Revenue per average account has been declining YoY for well over a year now.

I'd have to do some work to reconcile your numbers (e.g. are you excluding Market Maker). But in addition to lower DART per account (due to low volatility and mix shift). There is also some pressure on revenue per DART (due to mix shift, for example introducing brokers).

Anyway, the real question: is this pressure on revenue per account cyclical or secular? If it is cyclical, then the stock might be mis-priced. I assume a mix of secular and cyclical.