Interactive Brokers Group's Next Earnings Report Tomorrow Could Send the Stock Soaring. Here's Why.

Optimism was in the air ahead of Interactive Brokers' upcoming third-quarter earnings report, scheduled to be unveiled after market close on Thursday. The global electronic brokerage has grown rapidly in recent years, more than doubling its annual revenue from 2022 to 2025.

The company's growth has matured to more modest levels since then; still, it seems to have found a solid position in the experienced/active investor and institutional segments of the market. This distinguishes it from Charles Schwab (NYSE:SCHW), which tilts toward the individual market player, and Robinhood Markets (NASDAQ:HOOD), the flashy next-generation company that actively courts young, adventurous investors. And the commissions Interactive earns from its seasoned client niche could be more considerable than many believe, positioning the stock for a good post-earnings pop.

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Two powerful revenue streams

Similar to Charles Schwab, Interactive has a large pool of client funds sitting in the company's accounts, waiting to be allocated to investments. Like any proactive business that wants to make money, Interactive doesn't just let these funds sit idle; it invests them in relatively conservative assets and earns interest.

That, minus what the company pays to encourage clients to keep their cash in place, is called net interest income (NII). In 2022, NII surpassed the 50% threshold, accounting for more than half of Interactive's total revenue. The company has never looked back, with second-quarter NII of $1.06 billion representing 56% of the full top line.

So the performance of that line item will matter in how investors react to the results of quarter No. 3.

That's not the only metric they'll be watching, of course. Interactive's runner-up revenue generator is commissions from securities trading. This might be surprising to retail investors accustomed to zero-fee trading facilitators. Again, though, the company primarily serves veteran and active traders, as well as institutions, through its IBKR Pro service (rather than the IBKR Lite offering that mainly targets individual U.S. investors). With Pro's beefed-up features such as its price-optimizing IBSmartRouting algorithm, clients are willing to pay commissions for advanced-level order execution.

Commissions are just as much a motor of growth as NII; in fact, in the second quarter they were even more so. Thanks to a surge in trading activity, daily average revenue trades (DARTs, an important metric in the brokerage sector) rose to a near-record 4.8 million, up 36%.

With a fairly straightforward revenue structure for a modern brokerage and expenses kept admirably under control, Interactive's profitability tends to rise at a comparable rate. For said quarter, it rose by 21% to almost $1.2 billion.

No bummer this summer

The third quarter covers the typically sleepy summer trading season, so financial sector observers might expect relative sluggishness in commission growth for Interactive and its peers (although NII should continue to motor along nicely).

This seems to be reflected in the consensus analyst growth estimates for Interactive in the period -- the adjusted earnings per share (EPS) figure is expected to "only" rise by 18% to $0.67, on total revenue predicted to be 15% higher at $1.86 billion.

I think those pundits might be underestimating the capital markets. From what we've seen so far with the third-quarter results of some U.S. banks deeply engaged in trading -- Goldman Sachs (NYSE:GS) and JPMorgan Chase (NYSE:JPM) leap immediately to mind -- this activity was torrid at times this summer. No, commissions aren't the revenue foundation that NII is. Still, a notable surge in the company's take could very well result in convincing top- and bottom-line beats and push Interactive stock skyward.

Charles Schwab is an advertising partner of Motley Fool Money. Citigroup is an advertising partner of Motley Fool Money. Eric Volkman has positions in Charles Schwab. The Motley Fool has positions in and recommends Goldman Sachs Group and Interactive Brokers Group. The Motley Fool recommends Charles Schwab and Robinhood Markets and recommends the following options: long January 2027 $43.75 calls on Interactive Brokers Group, short January 2027 $46.25 calls on Interactive Brokers Group, and short September 2026 $95 calls on Charles Schwab. The Motley Fool has a disclosure policy.