IBKR's 2025 Scale Reinforces Moat, but Cyclical Risks Loom

What happened

Interactive Brokers' 2025 recap highlights a year of significant scale, with over 1 million net new accounts added and client equity expanded, reinforcing operating leverage. This growth translated into profit, contributing to record net revenues and pre-tax margins of 79% in Q4 2025, as noted in recent filings. However, the DeepValue report underscores that such performance is cyclically dependent on elevated trading volumes and favorable interest rates, which may not be sustainable. Management's disclosures acknowledge retail participation is unpredictable and net interest income is sensitive to rate cuts, with a ~$335 million impact per 100 bps decline, posing earnings risks. Despite the positive narrative, underlying vulnerabilities from normalization and a high valuation at ~21x trailing EPS suggest the stock's recent run may have priced in optimistic assumptions.

Implication

The addition of over 1 million accounts and expanded client equity strengthens IBKR's operating leverage, supporting its high-margin, technology-driven model. However, with 61% of 2024 revenue from net interest income, further global rate cuts could mechanically pressure earnings by up to ~$335 million per 100 bps, as per disclosed sensitivities. Evidence from late-2025 data indicates account growth is normalizing to high-teens from peak levels, signaling potential activity deceleration. At a ~21x trailing P/E after a ~58% 12-month gain, the stock embeds expectations for sustained double-digit growth, leaving limited margin of safety if trading or rates soften. Therefore, while the scale achievements are real, investors should prioritize patience, seeking entry near $65 or waiting for clearer signs of durable margins amid cyclical headwinds.

Thesis delta

The 2025 recap confirms IBKR's execution in scaling its platform during favorable market conditions, aligning with the base case of solid but slower growth. However, it does not shift the investment thesis, as valuation remains full at ~21x EPS and cyclical risks from rate cuts and activity normalization persist, maintaining the 'WAIT' rating. Investors should continue to monitor monthly metrics and rate environments for reassessment, with no fundamental change to the cautious stance.