Interactive Brokers May Report Largest-Ever Profit

Interactive Brokers Group Inc. (IBKR), among the top eight largest online brokerages worldwide by assets under management (AUM), will likely post its largest-ever profit for the fourth quarter of 2022, amid a favorable interest rate environment and an increasing user base.

The electronic brokerage's net income probably rose about 74% year-over-year to $589 million, for an adjusted earnings per share (EPS) of $1.17, according to estimates from Visible Alpha. Revenue is expected to climb nearly 52% to $915.8 million. The firm reports fiscal results after markets close on Tuesday.

Interactive Brokers' profit and revenue increases underscore the benefit of last year's aggressive interest rate hikes by the Federal Reserve. As rates climb, Interactive Brokers is able to increase its own rates on margin loans to customers. A spike in margin-loan revenue led to a positive earnings surprise for the firm in its third-quarter report. The Fed is likely to keep rates high throughout 2023, potentially providing an enduring benefit for companies like Interactive Brokers.

The company's resilience in the face of inflation and a cooling economy led Piper Sandler analyst Rich Repetto to recommend overweighting Interactive Brokers toward the end of the year.

Interactive Brokers' shares surged in the second half of 2022 and increased 9.4% overall in the last year, compared with a roughly 13% drop for the S&P 500 Index (see chart below).

The Key Metric: Active Trading Accounts

The number of active trading accounts is a key metric for brokerages like Interactive Brokers because they make money from users placing trades through their platform. The more people making trades, the greater the amount the company can earn from commissions, margin loans, and other fees.

In the third quarter of 2022, Interactive Brokers' active trading accounts topped 2 million for the first time. This was more than double the number of accounts from just two years prior and more than triple the level from three years earlier. The company's accounts figure is expected to reach 2.1 million in the most recent quarter. Still, the pace of accounts growth has steadily slowed over several recent quarters, suggesting that Interactive Brokers may not be able to maintain this pace going forward.