10-KPeriod: FY2016

Interactive Brokers Group, Inc. Annual Report, Year Ended Dec 31, 2016

Filed February 28, 2017For Securities:IBKR

Summary

Interactive Brokers Group, Inc. (IBKR) reported strong financial performance for the fiscal year ended December 31, 2016. The company saw a significant increase in net revenues, primarily driven by growth in its electronic brokerage segment, which benefited from higher net interest income and lower customer bad debt expenses compared to the prior year. Despite a challenging market environment leading to lower trading gains in the market making segment, overall profitability improved considerably, with diluted earnings per share (EPS) rising to $1.25 from $0.78 in 2015. The company continues to demonstrate its commitment to technological innovation, enhancing its automated trading platforms and risk management systems. IBKR's customer base expanded significantly, with a notable increase in customer accounts and equity, reflecting the company's competitive positioning and its ability to attract sophisticated institutional and retail investors globally. The company maintained strong regulatory capital compliance, with substantial excess regulatory capital across its operating entities, positioning it well for continued growth and market resilience.

Financial Highlights

31 data points
Beta

Revenue

$1.48B

Net Income

$84.00M

5.7% Net Margin

EPS (Diluted)

$0.31

Total Assets

$54.67B

Cash & Equivalents

$1.93B

Free Cash Flow

$635.00M

Financial Statements
Beta
Revenue$1.48B
Net Income$84.00M
EPS (Basic)$0.32
EPS (Diluted)$0.31
Shares Outstanding (Basic)264.05M
Shares Outstanding (Diluted)269.20M

Key Highlights

  • 1Total net revenues increased by 17% to $1.4 billion in 2016.
  • 2Diluted earnings per share (EPS) rose to $1.25 in 2016, up from $0.78 in 2015.
  • 3Electronic brokerage segment income before income taxes increased by 41% to $756 million, largely due to lower bad debt expenses and higher net interest income.
  • 4Market making segment income before income taxes decreased by 66% to $44 million due to lower trading volumes and volatility.
  • 5Total customer accounts grew by 16% to 385,000.
  • 6The company maintained strong liquidity with $1.9 billion in cash and cash equivalents.
  • 7Excess regulatory capital for all operating companies was $4.2 billion as of December 31, 2016.

Frequently Asked Questions

The primary driver of revenue growth was the electronic brokerage segment, which saw increased net interest income and a significant reduction in customer bad debt expenses compared to the previous year. While market making revenues declined due to lower volatility and trading volumes, the strong performance in brokerage offset this.

Interactive Brokers operates globally and manages currency exposure by maintaining its net worth in a basket of 15 currencies called the 'GLOBAL'. This strategy aims to diversify risk and align hedging with its business operations. The company reported that the U.S. dollar value of the GLOBAL decreased by 0.93% in 2016, impacting comprehensive earnings.

Key risks include dependence on proprietary technology, intense competition in both brokerage and market making, potential systemic market events, regulatory and legal uncertainties, and risks associated with international operations. The company also highlighted control by its founder, Thomas Peterffy, due to his significant ownership, which could lead to conflicts of interest.

Interactive Brokers heavily relies on its proprietary technology to automate brokerage and market making functions, offering clients low costs, efficient trade execution, and advanced tools like IB SmartRouting. This technological advantage is considered a key competitive differentiator and a significant barrier to entry for competitors.