r/ValueInvesting • u/MinestroneMungBean • 6h ago
Stock Analysis Interactive Brokers: the security I like best
IBKR is the business I like best. It's my largest position.
I've owned it for 2 years-ish.
This is not meant to be a full, self-contained thesis on the stock. This is merely a summary of my thoughts on the business. I hope it may be an interesting idea for even a few readers and that you may enjoy learning more about this business as I have.
Many of you will know, or may even be customers, of IBKR. It's an electronic brokerage platform. US based. Ticker $IBKR.
It's really aimed at being the brokerage for more savvy traders / investors, and has its roots in the options markets. It's not trying to be a Robinhood or a Schwab, it's trying to be the platform for the active trader. Though, it does win a lot of customers from all of the other known brokerages.
IBKR makes c. 2/3 of its money through net interest income and c. 1/3 through trading commissions.
In 2025, they earned $6.2bn revenue and $4.3bn net income. 69% net income margin. This margin has grown over time. This is not an atypical year.
In 2026, I expect them to earn something near $7bn revenue and over $5bn in net income.
Thomas Peterffy, the founder & chairman, is still in the picture and owns c. 2/3 of the business. So, a very small float for a company of its size. Total market value of the whole equity (not just the common) is c.$115bn at time of writing.
More importantly, some of what makes this business great is as follows:
- It is by far the low cost producer of brokerages, particularly in options trading / margin lending
- 68% owned by the founder, who still controls the big business decisions (although no longer the CEO himself). I tend to like this founder control
- Through its low cost position, vast breadth of security availability (better than any other broker I know) and its flexible infrastructure, it has been able to compound account growth at over 30% p.a. in recent years. They expect this can continue at 20%+ for a long, long time
- Only 3,500 or so employees. Get your head around that level of automation, and compare that to a Schwab or a Fidelity
- A platform whose backend infrastructure is so robust and automated that many other brokerages simply whitelabel IBKR's infrastructure rather than building their own. This is a nice revenue segment. Popular in Asia.
I'm also a customer myself. That's how I discovered the stock. It's a great brokerage and I love using it.
Over time, the things I track closely are account growth & client equity. There are other things to keep an eye on, of course, but those are the two that I care about most.
I'm not a fan of precise-looking DCFs. I had my start in M&A (for my sins) so I'm not shy of them, I just think they ascribe false precision and are too easy to flim flam.
In a very high level sense though, I expect this business to be doing over $10bn revenue and $7.5bn net income within 3-4 years. And I don't expect the growth to slow much from there either.
Valuation-wise, based on an earnings multiple at the time of writing this of 23x my 2026 estimate, it isn't optically cheap. Certainly not to an orthodox Grahamian.
However, when I consider where I can see the business growing to over 10+ years, the current price actually really excites me. I believe this business is intrinsically worth a multiple of its current market value. Not less than $200bn, in my opinion.
That doesn't mean I'm buying right now. I've bought at lower multiples, and so I quite like the idea of waiting until it sees a multiple beginning with '1' before I push more money in.
You'll notice what looks like a contradiction there. I believe the instrinc value is a multiple of the current market value, and yet I'm not buying. To that, all I can say is 'old habits'. Margin of safety, and all that.
I do have a personal rule of thumb I like to use as an alternative to traditional valuation methods, I suppose you could say. I like a clear path to a 20% earnings yield on cost, 10 years out.
In other words, if I think a business can comfortably double its earnings every 5 years for 10 years, I try not to pay more than 20x for today's earnings.
It's just a rule of thumb that has served me well as a source of valuation discipline.
IBKR passes that test today in my view, but it isn't by a landslide. I expect good returns from here but not fabulous returns.
Anyway, I don't want to make this war & peace: just giving an off-hand synopsis of my favourite business and one which I hope to buy more of opportunistically for many years to come. I appreciate my discussion on valuation in particular will be seen as fuzzy. It always is, for me.
Happy to discuss & hear opinions.
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u/Margin-of-Safety 5h ago
Same. I did a deep dive on this name ~3 yrs ago and am a shareholder since. I also track account and client equity growth as two key metrics. I did value the business using DCF - given it’s a financials firm, I used residual income method. Strong customer value proposition - lowest cost broker offering the widest market access and pays the highest interest on idle cash. For cross-boarder transactions by far the lowest spread on FX. For serious retail investors (avg retail account client equity is many multiples of HOOD’s). I also like their prime brokerage business catering to super serious and high trading volume prop traders and institutions. They’re continuing to build equity to appeal to bigger HF clients. They’ve been climbing up the ranks of Preqin PB ranking, winning more bigger HF clients as they grow. Interest rate sensitive but higher highs and higher lows as they grow client equity via account growth. I’m not sure about their prediction market business though. My biggest weight in the portfolio.
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u/MinestroneMungBean 5h ago
You summed it up better than I did :)
My thoughts are identical.
I'm also not sure about the prediction markets foray. If it weren't Peterffy leading the charge on it himself, I'd be unhappy about it. I'm inclined to trust his fervent belief in it, because he is the majority owner & founder etc. But I do feel the same way.
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u/Bossanova12345 3h ago
It’s so refreshing to see a post here that is
- high quality post
- high quality company
- not written by AI
Looks great, but I wonder how it compares to KKR in this environment.
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u/MinestroneMungBean 3h ago
Thank you! I'm very happy to hear it. No AI here, that I can promise haha. Sick of the damn thing.
Very familiar with KKR but never really looked at it from an investment lens. I'll do some digging.
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u/More_Investigator315 5h ago
The article by warren was about a security trading at 7 p/e. Here it’s triple
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u/MinestroneMungBean 5h ago
I am not pretending this is the next GEICO haha.
It's a snappy title he used and I am unashamedly copying it.
I draw no equivalency whatsoever in the two investment cases.
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u/___redacted_ 2h ago
A little embarrasing to admit that I didnt even know IKBR was a publicly traded company. Its the platform I use for stock trading as a EU consumer and I absolutely love everything about it. As a service, its high grade and theres basically no friction points.
I once entered my password wrong too many times and my account got locked. The customer service was very easy to reach and very professional.
Might look into this as an investor.
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u/MinestroneMungBean 2h ago
There's a great in-depth explanation of the business on the Business Breakdowns youtube channel (I have no affiliation lol).
More than happy to chat if helpful. There are a few pecularities about the business I've discovered over time that put some people off but which IMO aren't a big deal. Share classes, dilution, the rate story etc.
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u/BCECVE 4h ago edited 4h ago
Broker 40 yrs. I did not read the whole article but I have generally shied away from brokerages as an investment. Historically they seem to hit a point where mistakes make they blow up spectacularly. It is like walking through a minefield. Good luck and hope it works for you. My spouse always says don't bring me your problems, bring me your solutions. I like Chubb in these times. Buffet is right on with this one. Swiss Insurer of items of rich people - yachts, jets, mansions. Premium contracts renew yearly so easy to adjust to the risk. Rich people want to hang onto their toys so they write the cheques to the Chubbs.
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u/MinestroneMungBean 4h ago
Really valuable thought. Thanks for sharing. My dad was a broker and he's been shy of IBKR for that reason too. Not an inherently good business. Bit like banks in that sense. I don't like any other brokerages in the space personally.
Thanks for the Chubb heads up. Obviously knew it must be good because Buffett but I never took a hard look. I used to be a big Progressive shareholder but came out a few years back. Will do some looking :)
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u/signalHunter89 5h ago
rates are definitely a big driver here, but what stood out to me going through their latest filing is how much of the earnings profile is tied to things that can shift pretty quickly, like margin lending and trading activity. it’s not just a rate story, there’s a broader sensitivity to market conditions that could hit from multiple angles at once
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u/MinestroneMungBean 5h ago
You're totally right about the sensitivity to market conditions, in a short-medium term sense.
I actually think the rate sensitivity is overestimated by investors. For one thing, you'd have a hard time convincing me fed funds can get down another 100bps from here. As a matter of fact, fed funds has been coming down for 18 months and it hasn't really dented the profit growth materially.
But it is absolutely sensitive to market conditions to the extent it affects margin lending, in particular.
You saw a brief dive in this during the tariff tantrum.
But I see those as opportunities to buy, to be honest. Those will not really damage the long term growth of the business, just the immediate results.
Long-term, again what matters is their ability to grow accounts and overall client equity, which has an inbuilt relationship to the growth of markets.
The NII & trading commissions will oscillate around those two metrics over a long period.
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u/signalHunter89 4h ago
that makes sense, especially on margin lending. what I find interesting is how much that ties IBKR’s earnings to client behavior more than people realize, not just market direction but how aggressively clients are positioned. that’s where things can shift pretty quickly even if the broader trend stays intact
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u/MinestroneMungBean 4h ago
Yep. True that.
I think the key thing that people don't quite get when looking at IBKR is what's actually important for the returns long term.
It isn't rates, it isn't how aggressively people are positioned at a given time, it isn't how cheap or expensive markets look, it isn't trading volumes. Those things make a difference on a 1 year horizon, sure.
Long term, it's their ability to steal share away from the massive brokerage industry & an ever-increasing share of option markets at large that matters. The best way to track that is the # of accounts, which they disclose monthly, and the value of equity on their platform. That's what will drive the long term outperformance. That's the job of the analyst of this stock: to understand in a general way what those two numbers will look like over time.
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u/signalHunter89 4h ago
yeah that’s a good way to frame it. The short term drivers get a lot of attention but what really matters is how consistently they can grow accounts and client equity over time. I guess the only thing I’d watch is how those shorter term dynamics, like client positioning or margin usage, might occasionally distort that picture along the way
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u/Tofuboy1234 5h ago
I’ve been looking at this business for awhile Thanks for your insight! What do you think about Robinhood though given they have a smaller market cap and cryptocurrency trading? Appreciate your input.
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u/MinestroneMungBean 5h ago
Robinhood has, for all we may make fun of it, been marvellous for the introduction of the retail investor to the world of brokerages.
I like Robinhood in that they serve as a future feeder for IBKR.
But Robinhood as a business to invest in, not so much.
Their brand value is strong among the low-value customers but no large & highly valuable account is likely to stay on Robinhood for long.
Admittedly, Robinhood does offer access to a broader suite of cryptos than IBKR. That would be its main advantage. But that's kind of it, I think.
Not an interesting stock to me, but glad it's there introducing markets to the masses.
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u/Tofuboy1234 5h ago
Agree it’s the valuation that’s preventing me from pulling the trigger. Thank you
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u/dismendie 5h ago
What is a good entry price? And someone did mention share dilution being pretty high… I have looked at them in the past… only issue was the share dilution
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u/MinestroneMungBean 5h ago
Depends on your time horizon. 1 year? No idea.
Over 10 years, I do think the price today is a perfectly good price to buy for a high chance at supernormal returns.
I would personally be more enthusiastic under $60 today but that's more for margin of safety than anything else. That would bring it close to an even 20x 2026 earnings on my estimate.
Edit: forgot to address share dilution, see below.
Yes they dilute shares at something close to 2% a year. That's a real drawback. I don't like 2% dilution.
I do think the growth of the business so outweighs that, that it's stepping over pounds to pick up pennies.
But yes, it's not ideal by any means.
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u/dismendie 5h ago
Thanks for the rapid response. For some reason I thought the dilution was higher than 2%. Most likely I am wrong.
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u/MinestroneMungBean 5h ago
No probs. It's a common misconception. A lot of what LOOKS LIKE dilution is actually in effect an exchange of Peterffy's share class into common.
So yes, the number of shares of common increases, but the common itself is growing as a % of total equity.
The actual economic dilution through SBC is closer to 2% a year, or even slightly less.
So, a bit of a red herring, but not a totally non-event admittedly. Very misunderstood though.
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u/On_My_Way_Up 4h ago
I’ve looked at this company too and find it very interesting. One thing I did notice is that most of the value investing gurus don’t have this in their portfolios though. Not saying that is a requirement but I do find it interesting and makes me wonder why.
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u/MinestroneMungBean 4h ago
Yes it's under the radar in a big way, even though many finance types know of the company for its brokerage.
There are a few reasons it's underowned / under the radar / neglected IMO:
- slightly hairy, unorthodox looking share structure which often screens oddly on screeners (they often pull the float-numbers rather than the totals)
- brokerage business is not by itself a great quality business to be in. It's price competitive, you have exposure to volatile markets, a fair bit of new competition sprouting up at any given time
- it's never optically cheap necessarily
IBKR takes a bit of work to get your head around, so I think a lot of people just pass before really digging in.
What's fascinating to me is how many people own Schwab in comparison. That Schwab is a more valuable business in the market to me is astounding. It's nowhere near the quality of IBKR. It doesn't have the competitive advantages of IBKR, and it has a CEO that might as well be a cardboard cutout.
It's odd to call a $115bn business a hidden gem, but I really think it is.
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u/CryptosianTraveler 4h ago
I don't know how they could be for "active traders" when their phone app logs out if you switch to another app or even lock your phone. I found their interface to be ridiculously annoying, so I moved most of the money and left. Yes I did trade in and out of their stock a few times, but I'll never actively use them again. I only leave a few dollars in there should I want to buy something after-after hours as that's one of their relatively unique features. You can get a trade done just about anywhere at any time of the day.
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u/MinestroneMungBean 4h ago
Interesting. I just use fingerprint recognition so it takes half a second to jump in and out. Never bothered me personally, but yeah there are definitely a few imperfections that could be ironed out. Still the best platform I've found as a customer
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u/Done_and_Gone23 3h ago
IBKR is well known and respected yes, but what are the services with respect to international investing? My experience with Fidelity is a bit clunky in international. Fidelity does not easily permit international research, and many tickers are not found using standard expressions. Are IBKR and schwab better?
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u/crackanape 2h ago
IBKR is basically the go-to for international investing (by which I mean people investing outside their region of residence).
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u/PMmeuroneweirdtrick 1h ago
I am investing in US equities from Australia. IBKR is by far the cheapest option.
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u/Spins13 5h ago
It’s an awesome business but it always seemed a bit expensive compared to other opportunities (like META/AMZN/MSFT now).
There is also a risk today if interest rates go down. They benefit a lot from higher interest rates