Adjusted earnings of 67 cents a share matched forecasts and revenue edged past estimates. Growth in accounts, client equity and margin loans ran far ahead of trading activity, and the net interest margin narrowed.
Interactive Brokers has more customers than ever, holding more money and borrowing more against it. They are trading fewer shares.
The online brokerage reported third-quarter adjusted earnings of 67 cents a share, in line with forecasts, on adjusted net revenue of $1.87 billion, slightly above the $1.86 billion consensus. On a reported basis, earnings were 69 cents a share and net revenue $1.91 billion. The pretax margin was 78%.
The company raised its quarterly dividend to 15 cents from 8.75 cents, an increase of about 71%.
Shares fell as much as about 2% in after-hours trading from Thursday's close of $86.03 before paring losses, and were quoted near $85.10, about 1% lower, overnight.
The growth side
The client numbers were strong. Accounts rose 35% to 5.58 million. Customer equity climbed 27% to $964.7 billion. Margin loans grew 36% to $105.2 billion, and customer credit balances rose 20%. Daily average revenue trades, a measure of order activity, increased 18% to 4.27 million.
Commissions rose 12% to $602 million, which the company attributed to "18% higher DARTs and higher regulatory fees." Net interest income rose 19% to $1.15 billion.
The softer side
Two figures cut the other way. Stock trading volume fell 24% from a year earlier, even as total trades across all products rose. And the net interest margin narrowed to 1.99% from 2.16%.
The margin decline matters because interest income is the largest part of the company's revenue. Net interest income still grew, because balances expanded even as the spread earned on them narrowed.
Leverage in the system
The 36% rise in margin loans is notable for the week it was reported. Investors borrowed more against their portfolios during a quarter when markets were near records, and the report landed days after a selloff in AI-linked stocks rattled credit markets. Higher margin balances raise interest income in good times and the risk of forced selling in bad ones.
The results also offer a comparison with Charles Schwab, which reported a record $190.4 billion of core net new assets on Thursday but saw its stock fall about 3%.
Market implications
One reading is that Interactive Brokers is compounding. Accounts, client assets and loans are growing at double-digit rates, the pretax margin is 78%, and a 71% dividend increase signals confidence in the cash flow.
A second reading is that the quality of growth is softening. A narrower interest margin, a 24% drop in stock volume and earnings that only matched forecasts suggest revenue will grow more slowly than client assets, particularly if interest rates fall.
What to watch
Monthly brokerage metrics for October, due in early November, which will show whether trading volumes recover, and the trend in margin loans if market volatility rises. A further decline in the net interest margin would put more weight on the second reading.