The lowest-cost electronic brokerage is a two-sided market compounder with 70%+ operating margins and explosive account growth
Bryan Lawrence
Oakcliff Capital
“We look for three types of businesses: two-sided markets that create value for multiple stakeholders, lowest-cost operators in fragmented industries with sustainable advantages, and companies with pricing power and high utility relative to cost.”
The Business
- Interactive Brokers Group (IBKR) is a fully automated electronic brokerage firm founded in 1978 by Thomas Peterffy. The company provides execution, clearing, and settlement services across stocks, options, futures, forex, bonds, metals, and cryptocurrencies on 150+ exchanges in 34 countries across 29 currencies.
- IBKR serves individual investors, financial advisors, hedge funds, proprietary trading firms, and introducing brokers. The company's competitive advantage stems from its technology-driven, lowest-cost model — it processes millions of trades daily with minimal human intervention, generating 71% operating margins.
- FY2024 revenue was $5.2B with $3.7B in pre-tax income. Customer accounts are growing at 25%+ annually, approaching 3 million.
- Founder Thomas Peterffy retains ~75% economic interest in the business through IBG LLC.
Why They Own It
“We look for three types of businesses: two-sided markets that create value for multiple stakeholders, lowest-cost operators in fragmented industries with sustainable advantages, and companies with pricing power and high utility relative to cost.”
- Interactive Brokers is Bryan Lawrence's largest position because it exemplifies two of his three preferred business categories simultaneously: it is a two-sided market (connecting traders to exchanges worldwide) AND a lowest-cost operator in a fragmented industry. IBKR's fully automated platform processes trades at a fraction of competitors' cost, generating 71% operating margins on $5.2B of revenue.
- The company sits on a self-reinforcing flywheel: lower costs attract more sophisticated traders, more flow improves execution quality, better execution attracts more flow. Thomas Peterffy's 75%+ economic interest ensures perfect alignment.
- With customer accounts compounding at 25%+ annually and only ~3 million accounts vs. Schwab's 35 million+, the runway for growth is enormous.
- Lawrence sees this as a rare business where the competitive advantage actually widens with scale — each incremental account costs almost nothing to serve on a fully automated platform.
What the investor sees
At $66M for a 28.4% position, Lawrence's total portfolio is roughly $232M. He builds 10-year DCF models targeting 20%+ IRR for new purchases. IBKR trades at roughly 30x earnings, which looks expensive on a trailing P/E basis but is justified when you model the account growth trajectory: if accounts compound at 20%+ annually from ~3 million to 15-20 million over the next decade, and revenue per account stays stable or grows with market activity, IBKR's earnings power in 2034 dwarfs today's levels. At 30x today's EPS of ~$1.73, you are paying a very low multiple of 2030+ earnings. The 65%+ profit margin means nearly every incremental dollar of revenue falls to the bottom line.
Financial Snapshot
5185
revenue FY2024 millions
755
net income FY2024 millions
1.73
eps diluted FY2024
71.3
operating margin pct
19.5
revenue growth pct
65.7
profit margin pct
80.3
gross margin pct
~3 million (growing 25%+ annually)
customer accounts approx
The Moat
- Lowest-cost electronic broker globally — fully automated platform processes millions of trades at near-zero marginal cost
- Two-sided market network effects: more traders improve execution quality and liquidity, attracting more traders
- Technology platform built over 45+ years by founder Thomas Peterffy, one of the pioneers of electronic trading
- Regulatory moat: broker-dealer licenses in 34 countries create enormous barriers to entry
- Scale economics: 71% operating margin vs. industry average of 30-40%. Each incremental account adds revenue at near-100% incremental margin
- Founder-led with 75%+ economic alignment — Peterffy has more skin in the game than almost any public company CEO
What Could Go Wrong
Thomas Peterffy is 80 years old — succession risk is the biggest overhang on the stock
Revenue is correlated with market volatility and trading volumes — a prolonged low-volatility environment would slow growth
Regulatory risk: increased capital requirements or trading restrictions could compress margins
Competition from zero-commission brokers (Robinhood, Schwab) at the retail end, though IBKR targets professional/institutional traders
Concentrated ownership structure limits float and governance accountability
Net interest income (~50% of revenue) is sensitive to interest rate cuts — a rapid rate decline would compress earnings
Catalysts
- Continued 20-25% account growth as global retail trading adoption expands
- International expansion — IBKR is uniquely positioned as the only truly global retail/professional broker
- Rising interest rates boost net interest income on client cash balances
- Market share gains from institutional accounts seeking lowest execution costs
- Potential reclassification from 'brokerage' to 'financial technology platform' by market participants, driving multiple expansion
- Crypto and digital asset trading expansion adds new revenue streams with minimal incremental cost
In Their Own Words
“We try to become the most informed investor in each of our holdings, making roughly two new investments annually.”
“I develop 10-year cash flow projections for each holding. I target IRRs above 20% for new purchases and trim positions discounting IRRs below 15%.”
“Rather than relying heavily on management commentary, we talk to competitors, customers and ex-employees to obtain candid perspectives.”
“About half of the U.S. stock market consists of passive index funds and ETFs — this creates opportunities for active, research-intensive investors.”