Author Topic: IBKR - Interactive Brokers  (Read 172302 times)

AccentricInv

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Re: IBKR - Interactive Brokers
« Reply #330 on: March 09, 2017, 08:03:08 AM »
Just last week my girlfriend's Schwab account randomly showed a $0 balance. Couple phone calls got it sorted out. All technology companies have occasional glitches. Be careful not to extrapolate meaningless sample sizes.

On another note, I got my copy of Preqin's 2017 hedge fund report and was happy to see the entire back cover is an Interactive Brokers ad. Thought the ad was pretty solid...

Any idea if they finally hired a REAL professional marketing firm, instead of trying to do everything in-house?  Between this, their witty Barron's ad, and the increased number of ads I've seen at industry events, it recently seems Petterfy's finally loosening the marketing purse-strings?
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TwoCitiesCapital

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Re: IBKR - Interactive Brokers
« Reply #331 on: March 09, 2017, 08:08:12 AM »
https://www.streetinsider.com/dr/news.php?id=12647473

Quote
Interactive Brokers Group, Inc. (NASDAQ: IBKR) today announced that it will discontinue options market making activities globally, which are conducted through its Timber Hill companies. The Company expects to phase out these operations substantially over the coming months. The Company intends to continue conducting certain trading activities in stocks and related instruments.

Thomas Peterffy, Chairman and CEO, said, “Having initiated the first automated option market making operation in the mid ’80s, which grew into the largest such business on a global scale over the next 25 years, it’s been painful for me to see it deteriorating in the last few years. But we do not have a choice in this matter. Today retail order-flow is purchased by large order internalizers and joining them would represent a conflict we do not wish to have. On the other hand, providing liquidity to sophisticated, professional synthesizers of short-term fundamental, technical and big data is not a profitable activity.

Interesting

This is unfortunate....

One of the things I loved most about IB has been how cheap their options trading was. I typically pay $1-$3 per trade on IB the other brokers I've tried would charge $10-15 for the same trade

Travis Wiedower

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Re: IBKR - Interactive Brokers
« Reply #332 on: March 09, 2017, 08:26:29 AM »
Any idea if they finally hired a REAL professional marketing firm, instead of trying to do everything in-house?  Between this, their witty Barron's ad, and the increased number of ads I've seen at industry events, it recently seems Petterfy's finally loosening the marketing purse-strings?

I haven't heard anything, but I think it's likely. Their marketing has seen a noticeable uptick in quality.
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rb

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Re: IBKR - Interactive Brokers
« Reply #333 on: March 09, 2017, 08:31:40 AM »
https://www.streetinsider.com/dr/news.php?id=12647473

Quote
Interactive Brokers Group, Inc. (NASDAQ: IBKR) today announced that it will discontinue options market making activities globally, which are conducted through its Timber Hill companies. The Company expects to phase out these operations substantially over the coming months. The Company intends to continue conducting certain trading activities in stocks and related instruments.

Thomas Peterffy, Chairman and CEO, said, “Having initiated the first automated option market making operation in the mid ’80s, which grew into the largest such business on a global scale over the next 25 years, it’s been painful for me to see it deteriorating in the last few years. But we do not have a choice in this matter. Today retail order-flow is purchased by large order internalizers and joining them would represent a conflict we do not wish to have. On the other hand, providing liquidity to sophisticated, professional synthesizers of short-term fundamental, technical and big data is not a profitable activity.

Interesting

This is unfortunate....

One of the things I loved most about IB has been how cheap their options trading was. I typically pay $1-$3 per trade on IB the other brokers I've tried would charge $10-15 for the same trade
This could be good for IB stock. One of the most common reasons I've heard of clients not wanting to sign up with IB was their Timber Hill operation. It remains to be seen if they'll change prices for options.

writser

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Re: IBKR - Interactive Brokers
« Reply #334 on: March 09, 2017, 08:33:41 AM »
I think you misinterpret the press release (or I do). AFAIK nothing changes for you at the brokerage businesses. Their market maker business just stops market making in options because 1) valuable retail flow is internalized and they don't want to do that and 2) they cannot make money providing liquidity to the remaining sharks out there. So after 30 years they shut down options market making and probably pull a large chunk of capital from the (underperforming) market making segment to deploy in the brokerage business. Or to return it to shareholders. I don't see why that would mean higher fees. They were not internalizing anyway as far as I know.

I am allergic to paying 20x earnings or whatever for a business (and I don't like the convoluted shareholder structure of IBKR) but the past few years I've been happy with IB as a customer and impressed with the things Peterffy has said and done. If I would ever pay up for a great company this would be high on my list.
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TwoCitiesCapital

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Re: IBKR - Interactive Brokers
« Reply #335 on: March 09, 2017, 10:53:24 AM »
I think you misinterpret the press release (or I do). AFAIK nothing changes for you at the brokerage businesses. Their market maker business just stops market making in options because 1) valuable retail flow is internalized and they don't want to do that and 2) they cannot make money providing liquidity to the remaining sharks out there. So after 30 years they shut down options market making and probably pull a large chunk of capital from the (underperforming) market making segment to deploy in the brokerage business. Or to return it to shareholders. I don't see why that would mean higher fees. They were not internalizing anyway as far as I know.

I am allergic to paying 20x earnings or whatever for a business (and I don't like the convoluted shareholder structure of IBKR) but the past few years I've been happy with IB as a customer and impressed with the things Peterffy has said and done. If I would ever pay up for a great company this would be high on my list.

My bad. I did misinterpret.

kab60

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Re: IBKR - Interactive Brokers
« Reply #336 on: March 30, 2017, 06:13:40 AM »
I bought some more and made it my biggest position (and the most "expensive" at current earnings). Brokerage did 756m pretax income FY16 which included just two weeks of the December rate increase. Per the Q4 CC Peterffy said he expects brokerage to grow at a high double digit rate "although we will certainly try for more".

So let's say he's right and they grow brokerage 17 pct. this year and the same next year and we're at 1035m pretax income. If one backs out excess capital market cap is around 10b, so that's a valuation of 10xpretax 2018 brokerage income.

There's many ways to skin a cat, and one can definitely discuss whether the excess capital is truly excess or whether they'll achieve the stated growth (they're gaining more accounts but perhaps also less active/profitable)  but I don't think it matters too much in the big scheme of things. It's okay for me that they retain most of the cash since it probably make hedgefunds etc. more comfortable doing business.

It's unclear to me whether Peterffys growth expectations include the next rate increase, but I don't really care. The December increase plus the next should add some 90m to pretax brokerage income.

The one thing I don't like about this Company is the convoluted shareholder structure. I can't really figure out if there's a potential tax risk.

KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #337 on: March 30, 2017, 06:59:59 AM »
The one thing I don't like about this Company is the convoluted shareholder structure. I can't really figure out if there's a potential tax risk.

I don't think there is a tax risk to common shareholders. The reason why taxes are so low is because taxes are pass-through for the partnership. If you calculate the percentage of pre-tax income actually attributable to common shareholders as net income, you will see that common shareholders are paying a much higher tax rate.

Also note that the portion of after tax-income available for common shareholders is much less than the ownership structure implies (this was discussed previously).

cmlber

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Re: IBKR - Interactive Brokers
« Reply #338 on: March 30, 2017, 07:10:31 AM »
If one backs out excess capital market cap is around 10b, so that's a valuation of 10xpretax 2018 brokerage income.

There's many ways to skin a cat, and one can definitely discuss whether the excess capital is truly excess or whether they'll achieve the stated growth (they're gaining more accounts but perhaps also less active/profitable)  but I don't think it matters too much in the big scheme of things. It's okay for me that they retain most of the cash since it probably make hedgefunds etc. more comfortable doing business.

I don't think the excess capital is "excess" in any way, it can't be taken out of the business.  They need that capital to grow, no hedge fund is going to use IB with the regulatory minimum. 

KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #339 on: March 30, 2017, 07:32:27 AM »
I don't think the excess capital is "excess" in any way, it can't be taken out of the business.  They need that capital to grow, no hedge fund is going to use IB with the regulatory minimum.
They could take some capital out of the business without any damage to the balance sheet. Peterffy WON'T take the capital out of the business, though. So, it is wrong to value this ex-cash. Even worse, Peterffy plans to take the capital from the market maker and put it in the brokerage. So you can't even add back any value for the MM either.

Given the above, I think IBKR is richly valued compared to some other mid-teens growers (e.g. PCLN or GOOGL). I want to cut this down to a 5% position. But reluctant to sell into current weakness.

The one thing that prevents me from selling is that current trading activity seems unusually low. With a bit more volatility, earnings could really pop.