Thank you, it's a very helpful and well-structured review of the business. Not a likely addition to my portfolio at least at current valuation, but worth putting on the watch list. I also enjoy the product as their customer.
Thank you for the kind words. I agree, at these prices, it likely wouldn't be my first choice either, as I usually aim for a conservatively estimated CAGR of over 10%. However, as you rightly said, they do have a great product and I love their philosophy of technology first!
Have you seen the dilution? Share count in 2016 = 67 million, by 2020 = 81 million, by 2025 = 109 million.
Why does a company that has no debt and is churning cash need to keep issuing equity?
Stock based compensation is the answer.
Insiders are enriching themselves at the expense of external shareholders.
This kind of corporate cancer is prevalent in the US tech sector. Its awful. The regulator is asleep.
On that basis, I wouldn't invest. The share price is being inflated more by repurchases to offset dilution (and not doing a great job given the amount of dilution that is occurring), which destroys shareholder equity at these kinds of valuations, than it is being driven by fundamentals. That's a super dangerous situation for external investors.
Great company, great business, probably the best online broker out there (I use them myself), but that doesn't make it a great investment - despite the recent price spike. This is one where I would like to be an insider, but not an external investor.
I believe it's a bit different—IBKR isn’t diluting in the traditional sense. They’re not issuing new shares but converting privately held ones (mostly from the CEO) into publicly traded shares, increasing the public float. So while the total shares outstanding are rising, no new shares are being created—ownership is just shifting from private to public hands.
This was part of the IPO structure, not unexpected dilution. These shares were likely already factored into fully diluted EPS calculations, so the actual impact on earnings is minimal. The only thing changing is public shareholders' percentage ownership, not the company’s intrinsic value.
However, I agree that SBC is getting out of hand for a lot of companies (mostly in the US). I believe that IBKR is a bit different though (even though I think shares are too expensive right now).
You say, "The only thing changing is public shareholders' percentage ownership, not the company’s intrinsic value."
That's my point.
If the intrinsic value of a company is $1m and it has 1m shares, each share is worth $1.
If the intrinsic value is unchanged, as you say, at $1m and there are suddenly 2m shares, the value of your ownership has halved to 50 cents.
Incidentally, they are issuing new shares and giving them to insiders, while using shareholder capital to offset dilution through repurchases (which they will claim is returning value to investors). It's not. They are using shareholder capital to enrich insiders.
Why do people insist on defending this kind of abhorrent practice?
Investors need to stand up to it. It's the only way it will stop.
I wish I could find a way to take money from someone else and to dress it up in such a way that he defends my actions!
I am totally against excessive SBC don't get me wrong! However, I believe they aren't issuing new shares. I am not defending this kind of abhorrent practice. I believe that the amount of total shares stays the same. It's a different (and difficult) structure. But, I remember reading it like private shares of the CEO going public - so not dilutive to the total amount. That's how I understood it from their annual report (page 3). The structure is why IBKR screens very poorly, but in reality it's a bit different. But, I'd like to highlight the fact that I agree with your stance on SBC in general! Using shareholder capital to enrich insiders excessively isn't the way to go.
Take a look at the 2023 full year annual report (downloadable on the IBKR investor website). On page number 73 is the Consolidated Statements of Cash Flows. Under "Cash Flows from Financing Activities" you will see that they issue ~$30million of shares each fiscal year which is labeled proceeds from the sale of stock. The line item above it is the repurchase of stock, which is a very similar number to that being issued. Why issue $34m of stock in 2023 and concurrently repurchase $34m of stock? That's the transfer of wealth from external investors to insiders - hiding in plain sight. It's all there in black and white. The same has happened every year. And its getting worse. This is to cover the stock based comp from many years ago that vested in 2023. Since then, stock based comp has ballooned. So these figures will be much higher in future years. I hope this helps.
Interactive Brokers is the best broker for anyone that can’t open an account with some of the bigger brokers in the US. IB is the top broker for members that are not US members in the Finance community I work for.
To seed, build, and nurture timeless, intangible human capitals — such as resilience, trust, evolution, fulfilment, quality, peace, patience, discipline, relationships and conviction — in order to elevate human judgment, deepen relationships, and restore sacred trusteeship and stewardship of long-term firm value across generations.
A refreshing poetic take on our business world and capitalism.
A reflection on why today’s capital architectures—PE, VC, Hedge funds, SPAC, Alt funds, Rollups—mostly fail to build and nuture what time can trust.
Built to Be Left.
A quiet anatomy of extraction, abandonment, and the collapse of stewardship.
"Principal-Agent Risk is not a flaw in the system.
Thank you! Regarding share dilution, I believe that the increase in shares is largely due to the CEO selling his shares through IBG Holdings LLC. These are secondary sales, which means they don't result in new shares being issued and thus do not cause real dilution. Please let me know if you think I interpreted this one wrong!
Thank you, it's a very helpful and well-structured review of the business. Not a likely addition to my portfolio at least at current valuation, but worth putting on the watch list. I also enjoy the product as their customer.
Thank you for the kind words. I agree, at these prices, it likely wouldn't be my first choice either, as I usually aim for a conservatively estimated CAGR of over 10%. However, as you rightly said, they do have a great product and I love their philosophy of technology first!
Have you seen the dilution? Share count in 2016 = 67 million, by 2020 = 81 million, by 2025 = 109 million.
Why does a company that has no debt and is churning cash need to keep issuing equity?
Stock based compensation is the answer.
Insiders are enriching themselves at the expense of external shareholders.
This kind of corporate cancer is prevalent in the US tech sector. Its awful. The regulator is asleep.
On that basis, I wouldn't invest. The share price is being inflated more by repurchases to offset dilution (and not doing a great job given the amount of dilution that is occurring), which destroys shareholder equity at these kinds of valuations, than it is being driven by fundamentals. That's a super dangerous situation for external investors.
Great company, great business, probably the best online broker out there (I use them myself), but that doesn't make it a great investment - despite the recent price spike. This is one where I would like to be an insider, but not an external investor.
I believe it's a bit different—IBKR isn’t diluting in the traditional sense. They’re not issuing new shares but converting privately held ones (mostly from the CEO) into publicly traded shares, increasing the public float. So while the total shares outstanding are rising, no new shares are being created—ownership is just shifting from private to public hands.
This was part of the IPO structure, not unexpected dilution. These shares were likely already factored into fully diluted EPS calculations, so the actual impact on earnings is minimal. The only thing changing is public shareholders' percentage ownership, not the company’s intrinsic value.
However, I agree that SBC is getting out of hand for a lot of companies (mostly in the US). I believe that IBKR is a bit different though (even though I think shares are too expensive right now).
You say, "The only thing changing is public shareholders' percentage ownership, not the company’s intrinsic value."
That's my point.
If the intrinsic value of a company is $1m and it has 1m shares, each share is worth $1.
If the intrinsic value is unchanged, as you say, at $1m and there are suddenly 2m shares, the value of your ownership has halved to 50 cents.
Incidentally, they are issuing new shares and giving them to insiders, while using shareholder capital to offset dilution through repurchases (which they will claim is returning value to investors). It's not. They are using shareholder capital to enrich insiders.
Why do people insist on defending this kind of abhorrent practice?
Investors need to stand up to it. It's the only way it will stop.
I wish I could find a way to take money from someone else and to dress it up in such a way that he defends my actions!
I am totally against excessive SBC don't get me wrong! However, I believe they aren't issuing new shares. I am not defending this kind of abhorrent practice. I believe that the amount of total shares stays the same. It's a different (and difficult) structure. But, I remember reading it like private shares of the CEO going public - so not dilutive to the total amount. That's how I understood it from their annual report (page 3). The structure is why IBKR screens very poorly, but in reality it's a bit different. But, I'd like to highlight the fact that I agree with your stance on SBC in general! Using shareholder capital to enrich insiders excessively isn't the way to go.
Take a look at the 2023 full year annual report (downloadable on the IBKR investor website). On page number 73 is the Consolidated Statements of Cash Flows. Under "Cash Flows from Financing Activities" you will see that they issue ~$30million of shares each fiscal year which is labeled proceeds from the sale of stock. The line item above it is the repurchase of stock, which is a very similar number to that being issued. Why issue $34m of stock in 2023 and concurrently repurchase $34m of stock? That's the transfer of wealth from external investors to insiders - hiding in plain sight. It's all there in black and white. The same has happened every year. And its getting worse. This is to cover the stock based comp from many years ago that vested in 2023. Since then, stock based comp has ballooned. So these figures will be much higher in future years. I hope this helps.
Thanks James. I will take a closer look! FYI, I'm not a shareholder of IBKR anymore since the price skyrocketed.
Interactive Brokers is the best broker for anyone that can’t open an account with some of the bigger brokers in the US. IB is the top broker for members that are not US members in the Finance community I work for.
Very comprehensive. Nicely done!
Thanks for letting me know. Put quite a lot work into it, so I’m glad you found some value :)
What an excellent analysis. Thank you so much!
Thank you for reading it, I’m glad you like it!
Hello there,
Huge Respect for your work!
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But the work has waited long to be spoken.
Its truths have roots older than this platform.
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To seed, build, and nurture timeless, intangible human capitals — such as resilience, trust, evolution, fulfilment, quality, peace, patience, discipline, relationships and conviction — in order to elevate human judgment, deepen relationships, and restore sacred trusteeship and stewardship of long-term firm value across generations.
A refreshing poetic take on our business world and capitalism.
A reflection on why today’s capital architectures—PE, VC, Hedge funds, SPAC, Alt funds, Rollups—mostly fail to build and nuture what time can trust.
Built to Be Left.
A quiet anatomy of extraction, abandonment, and the collapse of stewardship.
"Principal-Agent Risk is not a flaw in the system.
It is the system’s operating principle”
Experience first. Return if it speaks to you.
- The Silent Treasury
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amazing IBKR has all these scaled advantages and only 2.46% market share
Well researched. Just wondering if you have factored in share dilution in your cagr computation.
Thank you! Regarding share dilution, I believe that the increase in shares is largely due to the CEO selling his shares through IBG Holdings LLC. These are secondary sales, which means they don't result in new shares being issued and thus do not cause real dilution. Please let me know if you think I interpreted this one wrong!
Careful with IBKR. It dropped from being the best international broker for HK stocks, to the worst.
https://jaminvest.substack.com/p/hk-16-broker-availability-lists
Thanks for letting me know!