Can this Fintech’s unstoppable growth continue?

One fintech that counteracts the bear market in technology stocks is Interactive brokers (IBKR -0.34%). Despite the market downturn, the online trading platform continues to attract new customers. Since the bear market began last year, Interactive Brokers has risen 2%, while the Nasdaq Composite Index has fallen 25%.

Individual investors and professional trading firms flock to the company because of its cutting-edge platform and cost-effective trading fees. The company’s latest earnings show no signs of slowing growth. Can Interactive Brokers maintain its unstoppable momentum? Let’s uncover the secret of success to find out.

Why Investors Flock to Interactive Brokers

Interactive Brokers offers electronic brokerage services to investors. It offers trading on everything imaginable, including stocks, options, futures, bonds, exchange-traded funds and other financial products. You can think of it as Fidelity, Robin Hoodor TD Ameritrade, except that Interactive Brokers caters to tech-savvy investors.

Investors have been turning to it for years because of its automated trading platform. The senior management consists mainly of software engineers and is committed to automating as much as possible. This automation allows Interactive Brokers to be the low cost provider of choice.

In five years, the number of customers has grown by an impressive 332%, or 34% annually! Customer accounts increased by 25% in the fourth quarter from the previous year to 2.09 million. Much of this growth came from individual investors, but it also saw an increase in proprietary traders and hedge funds. Although this growth rate is solid, management believes it can do even better.

How Interactive Brokers is ahead of the game

Interactive Brokers’ secret to success is that they are always thinking about how to automate their platform and various processes, which has kept their fees low to attract clients. However, the automation also improves the customer experience, one reason why it attracted so many hedge funds in the last couple of years.

Another advantage is that the automated platform gives it fat profit margins. In 2022, the profit margin before tax was 71%, up from 62% the previous year. Companies with high profit margins are efficient at turning revenue into profit. As a result, it has juicy cash flows that it can use to reinvest in the business.

For example, while many technology companies are laying off employees, Interactive Brokers is adding employees to continue building out and automating the business for its clients. One project the employees are working on is building an auction model for options. This contrasts with the PFOF (payment for order flow) model, where brokers will sell client orders to a single market maker who will execute the trades.

The SEC recently proposed changes requiring an auction-based execution of securities orders. Interactive Brokers is building its platform to offer auctions on both securities and options, which can help clients continue to get the best prices while aligning with what regulators want to see from all exchanges and brokers. Although the SEC has not proposed changes requiring auctions of options, Interactive Brokers management hopes this will be another selling point to attract more customers to the platform.

Its automated operations provide stability and growth

Interactive Brokers has done a fantastic job of building out their automated platform, appealing to professional investors and attracting individual investors as well. Its impressive growth continued last year despite a tough time for the stock market, and it should continue to gain market share as it builds its auction model for options trading.

It has impressive margins, an automated business and plenty of capital to spend on expansion, with more than $100 billion in liquid assets and zero debt on its balance sheet. Interactive Brokers’ continued investment in strengthening its tech-heavy business is a positive sign that its steady growth is likely to continue, making this fintech a solid stock to buy today.