IBKR - Interactive Brokers

[benhacker]

Quoting myself:

I have a nearly 10% position in this for my accounts, but I was 15% recently (I sold a large ~20% chunk of my holdings above $44)... Long term I probably should have done nothing... but this stock could easily drop 30% without a ton of folks stepping up to the plate.  At <$30, I'd probably take it back up to 12-15% all else equal.  As they say, lots of reasons people sell (both me and IBKR insiders)... but only one reason to buy more. ;-)

and here we are... sub $32 today.

Started nibbling a bit to build back up.

High priced growth stocks are always volatile I guess, why I size them down and up based on valuation.

[kab60]

What did you think of the results? I really appreciate your thoughts on IBKR.

[muscleman]

IBKR is the stock that I looked at and drew a similar conclusion as this one:
https://punchcardblog.wordpress.com/2014/12/10/interactive-brokers-group-ibkr/

What make you think he is wrong?

[KJP]

IBKR is the stock that I looked at and drew a similar conclusion as this one:
https://punchcardblog.wordpress.com/2014/12/10/interactive-brokers-group-ibkr/

What make you think he is wrong?

Look at slide 30.  It (i) projects significant revenue growth but brokerage margins that are lower than they are today, despite acknowledging that the business enjoys economies of scale; (ii) assigns no value to the market maker; and (iii) puts a 15 PE on the 2023 business.  The author acknowledges he's being conservative, but this seems extreme to me.  If you put in 70% EBIT margins, 25% tax rate, assign value to the still profitable (and NAV positive) market maker and use 20 PE you get a significantly different result.  I'm not saying all of my assumptions will happen, but they are certainly reasonable.   

[frommi]

I see a big problem here that all earnings are just reinvested in the marketmaker at a very low return. If they would dividend out all or could find better uses for all the cash, this investment would probably be a no brainer. Its easy to extrapolate the past growth into the future, but will it really grow at that rate going forward?

[60°North Investments]

In the Q4 conference call Peterffy talked about market shares. He mentioned them as 25% of proprietary trading groups, 15% of financially sophisticad individuals, 0.2% of hedge funds, <0.1% of RIAs. 1% hedge fund market share would be roughly $250m in commissions only, 1% of RIAs likely a nice sum too.

Currently the e-broker is doing about $1b revenues. I have no idea how big of a share IB could realistically capture of these markets over time. But if one believes that their technological advantage will enable them to win share over time across the board, then it's not hard to see how they could continue growing fast. As an example, getting a combined 5% share of HFs and RIAs would +2x sales.

[frommi]

In the Q4 conference call Peterffy talked about market shares. He mentioned them as 25% of proprietary trading groups, 15% of financially sophisticad individuals, 0.2% of hedge funds, <0.1% of RIAs. 1% hedge fund market share would be roughly $250m in commissions only, 1% of RIAs likely a nice sum too.

Currently the e-broker is doing about $1b revenues. I have no idea how big of a share IB could realistically capture of these markets over time. But if one believes that their technological advantage will enable them to win share over time across the board, then it's not hard to see how they could continue growing fast. As an example, getting a combined 5% share of HFs and RIAs would +2x sales.

With all thats going on right now and the rise of index funds, isn`t the hedgefund business a shrinking market? 

[KJP]

I see a big problem here that all earnings are just reinvested in the marketmaker at a very low return. If they would dividend out all or could find better uses for all the cash, this investment would probably be a no brainer. Its easy to extrapolate the past growth into the future, but will it really grow at that rate going forward?

I thought the company was deemphasizing its market making.  Why do you say that all earnings are being reinvested in that business?

[writser]

I see a big problem here that all earnings are just reinvested in the marketmaker at a very low return. If they would dividend out all or could find better uses for all the cash, this investment would probably be a no brainer. Its easy to extrapolate the past growth into the future, but will it really grow at that rate going forward?

I thought the company was deemphasizing its market making.  Why do you say that all earnings are being reinvested in that business?

+1. I don't think that is a significant risk.

[Liberty]

I see a big problem here that all earnings are just reinvested in the marketmaker at a very low return. If they would dividend out all or could find better uses for all the cash, this investment would probably be a no brainer. Its easy to extrapolate the past growth into the future, but will it really grow at that rate going forward?

I thought the company was deemphasizing its market making.  Why do you say that all earnings are being reinvested in that business?

If I remember correctly, they are taking 10% of equity out of the MM unit per year, so if it earns less than 10% ROE, it'll shrink to nothing over time, but if it earns more than that, it'll keep going.

But the broker side is growing so much faster than the MM that over time the MM will become relatively less important even if it doesn't shrink in absolute numbers.

That's my understanding, anyway.