Story Stocks^®

Interactive Brokers (IBKR -10%) is heading sharply lower following a Q1 EPS miss with in-line revenue. It also announced a 4-for-1 stock split and boosted its dividend by 28%, although the yield remains below 1%.

• Q1 was a pretty wild ride in the stock market. After a solid January, buoyed by post-US election enthusiasm, market indexes surged to peaks in mid-February. However, cracks soon began to show. DeepSeek and its less capital-intensive AI caused jitters in surging tech stocks. Then talk about tariffs further accelerated the decline in March.
• The S&P 500 ended the quarter down 5%, but it was off 9% from its February highs. Also, six of the Mag 7 stocks that dominated investor attention, fell significantly more than the market. However, Interactive Brokers noted that it does not need up markets to generate revenue. Of its 25 most active names, 22 saw net buying activity.
• In terms of products, IBKR noted that options were popular in Q1 with contract volumes up 25% to a quarterly record. Futures volumes were up 16%, which also was a record. Volume growth rates were ahead of industry volumes.
• IBKR also saw global interest from investors, both institutional and individual, in opening accounts. In Q1, IBKR added 279,000 new accounts, a record that well surpassed even the meme stock days of 1Q21. Total account growth was 32%, with even faster growth internationally.

So why is the stock sharply lower? While the EPS miss was a letdown, IBKR is known to have volatile earnings. It does not guide and its performance relies heavily on trading volumes, and that is difficult to predict. Also, IBKR has missed on EPS in three of the past six quarters. As such, we do not think the miss by itself was unusual.

We suspect the problem was that investors were looking for a massive Q1 given the huge volatility in the markets. The stock had been rising heading into this report, up about 30% from its roughly $135 low on April 7 to its $173.43 close yesterday. We think investors were looking for big Q1 upside given the market volatility and it did not materialize. The stock split and dividend hike were welcome news, but clearly investors were looking for more in Q1.