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Traders are hitting the buy button on Interactive Brokers (IBKR), the provider of an online trading platform, despite missing EPS expectations for the third time in the past four quarters. The small Q4 EPS miss is being brushed aside as the prospect of higher rates for longer permeates through the markets. 

• Higher interest rates have created a strong tailwind for net interest income, which accounts for over 50% of IBKR's total net revenue. Not only does the company earn more interest from clients' idle cash, but higher rates also allow it to charge more on margin loans. Due to these factors, net interest income jumped by 29% yr/yr in Q4 to $730 mln.
• Therefore, this recent bump higher in interest rates and the less optimistic view regarding rate cuts in the near future are seen as positives for IBKR.
• With this in mind, if the Fed does cut rates this year, as anticipated, then IBKR's net interest income would take a hit. Specifically, Mr. Brody estimated that for each 25 bps decrease in the Fed fund rate, IBKR's annual net interest income would be reduced by $56 mln. Furthermore, the impact of rate decreases in all relevant non-U.S. dollar benchmark rates would tack on another $18-$20 mln hit to annual net interest income for every 25 bps decrease in those benchmarks.
• Another way that high interest rates have helped IBKR is through offering higher yields on cash balances than its competitors. Currently, IBKR is paying a healthy 4.83% on qualified U.S. dollar balances, which is a significant source of new customer acquisition. During Q4, customer accounts grew by 23% to $2.56 mln.
• From a trading perspective, business was mixed in Q4 with options displaying notable strength as contract volumes increased by 21%. However, equity volume was weak, down 22%, largely offsetting the strength in options. Overall, daily average revenue trades (DARTs) edged higher by 2%, while commission revenue grew by 5% to $348 mln.
• Lastly, IBKR's margins really stand out, thanks to its focus on automation and expense control. Pre-tax margin was 72% for Q4 -- the best in the industry, according to IBKR -- and the company believes that it will remain above the 70% level, even if the Fed cuts rates a few times this year.

The main takeaway is that IBKR is performing well in a challenging and complex market, as illustrated by its 17% adjusted EPS growth. Although rate cuts would put a significant dent in IBKR's net interest income growth, those concerns are easing today as market participants contemplate a less accommodative Fed.