Interactive Brokers’ Commission revenues are increasing despite free trade

Interactive Brokers today reported fourth quarter earnings that exceeded analysts’ expectations as an increase in daily average revenue and customer accounts primarily supported results despite falling commission fees.

Interactive Brokers, ranked the largest US electronic broker by some standards, grew 20 percent year over year to $ 599 million in the fourth quarter from $ 500 million in the fourth quarter of 2019. In addition, revenue was up 9 percent over $ 548 million in the third quarter.

Income before taxes was $ 392 million. This represents an increase of 26 percent over the previous year from $ 312 million and an increase of 17 percent over the previous quarter from $ 334 million in the previous quarter.

Adjusted, the long-standing market leader in low-cost trading achieved profits in some key areas despite the ongoing decline in sales due to low interest rates. The discount brokerage posted adjusted earnings of $ 375 million, or 69 cents per share, for the quarter, up 19 percent from $ 315 million and 58 cents in the final quarter of 2019. According to FactSet, analysts expected 58 cents per share.

Additionally, adjusted net sales rose to $ 582 million, 16 percent above the $ 503 million posted in the same period last year. Analysts were expecting $ 560 million.

Commission income increased despite the race to bottom

Commission income increased despite the race to bottom

Despite headwinds from a toll-free push and historically low interest rates, Interactive Brokers’ commission income rose 71 percent to $ 120 million from the year-ago quarter. The positive number was attributed to higher customer trading volumes in a globally active trading environment.

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That was offset, however, by lower net interest income, which declined $ 62 million, or 22 percent, year over year as the impact of the Fed’s dramatic monetary easing stretched across the yield curve.

In particular, the average interest rate fell from 1.65% in the fourth quarter of 2019 to 0.09%, due to the fact that the compression of returns on assets outweighed the growth in customer balances.

Aside from its core electronic brokerage business, IB’s third quarter profit included a $ 39 million market value gain from its 7.7 percent stake in Tiger Brokers. This reflects an improvement over the company’s $ 7 million float loss tied to the Chinese broker in the fourth quarter of 2019.

In addition, Interactive Brokers posted a loss of $ 13 million in other income related to its currency diversification strategy, which returned $ 12 million in the same period in 2019.

Interactive Brokers holds its cash reserves in multiple currencies to reflect its global operations, which include important overseas segments.

Interactive Brokers’ Commission revenues are increasing despite free trade
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