Valuing Interactive Brokers IPO

Discussion in 'Retail Brokers' started by just21, Nov 28, 2006.

  1. just21


    The prospectus mentions 5% of the stock, without voting rights, for $500 million. That works out at $10 billion market cap.

    Page 99 of the prospectus compares IB trading volumes with Schwab. IB customers trade much more frequently than Schwab customers but there are less of them and they pay less in commissions.
    IB 77,000 customers make 124 trades a quarter at an an average of $4.49 equals $42,870,520
    Schwab 676100 customers trade twice a quater for an average of $12.89 equals $174,289,580.
    So IB has 24.6% of the revenue of Schwab a quarter but IB customer funds are growing at over 10% a quarter. So Schwabs market cap is $23.21 billion and IB is worth 24.6% of this or $5.7 billlion. I am assuming that Schwab sold it's market making arm to Knight capital, correct me if I am wrong.
    On page 2 of the prospectus though it mentions that IB is now doing 196,000 trades a quarter, divided by 77,000 accounts and multiplied by 63 trading days a quater equals 160 average trades per quarter multipled by $4.49 equals $720 per account or $55,442,520. This is 31.81% of Schwabs market cap or $7.6billion.
  2. just21


    Can someone, who can read a balance sheet, work out the market making net income from the prospectus? We can then add $7.6 bilion valuation of the broking business to the value of the market making business and use Knight Capital, which trades on a trailing pe of 12.01, net income of $150.2 million, market cap of $1.83 billion as a benchmark.
  3. just21


    On page 53 of the prospectus they break down net income from market making and brokerage.

    So in 2005 they made $505 million from market making, multiply by Knight Capitals PE of 12 equals $6060 billion. Add to this The brokerage net income of $59 million multiplied by the trailing PE of Schwab 24.97 and you get a value of $1473 billion.

    This gives a 2005 market cap of $7523 billion.

    Using the 2006 figures for the first 9 months and assuming growth continues in the fourth quarter at the same rate as the rest of 2006 gives us $696 million for market making and $102 million for brokerage. Multiply $696 million by 12 trailling PE of Nite equals $8.352 billion. Multiply $102 million by trailling PE of schwab equals $2.547 billion. Add them together and remember we are assuming that the 4th quarter is a s good as the other three quartes of 2006 gives us a market cap for IB of $10.899 billion.

    So if you can buy shares of IB in the IPO at $10 billion valuation you may make 8.99% on your investment.
  4. dhpar


    thanks for sharing your thoughts...
  5. just21


    Owning 85% of IB at a market cap of $10 billlion is going to make Thomas Peterffy the 19th richest american.
  6. just21


    How much cash should you add to the valuation from page F20 of the prospectus?
  7. just21


    Using the forward PE of NITE gives us $696 m * 14.39 = $10.015bn and the forward PE of SCHW is 19.73 * $102m = $2.012bn
    Market cap of $12.027bn
  8. just21


    broker trailing PE forward PE
    Goldman 11.98 11.28
    Merrill 13.58 12.44
    Bear 11.69 11.16
    Etrade 17.54 13.79
    Schwab 24.97 19.73
    Knight 12.01 14.39
    Raymond 17.53 13.24
    Lehman 11.64 10.8
    Morgan 10.56 11.28
    Blackrock 43 20.89
    Legg Mason 10.99 17.95
    Arthur Edwards 15.66 13.76
    J P Morgan 13.08 11.67
  9. just saw this headline from last week

    did they increase the number of shares to be offered
    is it going to be a "dutch auction"
    and what is the date it will start trading ?

    -Interactive Brokers (NASDAQ: IBKR) files an amended S-1/A. The Company now expects the IPO price to be between $23-27 per share. The company is offering 20 million shares.-
  10. the question is how do i get in on this auction? what brokers will let me get the action..

    (IB, nah I assume).
    #10     Feb 18, 2007