ICE Earnings Preview: Transaction-Based Revenues To Drive Results

IntercontinentalExchange Group (NYSE:ICE) is scheduled to announce its fourth quarter fiscal 2015 earnings on Thursday, February 4. ^[1]">Intercontinental Exchange To Report Q4 Results on February 4, ICE Press Release, December 2015)) The company consistently observed growth in all its revenue streams through the nine months through September in 2015. As a result, the company’s net revenues increased by over 7% y-o-y to $2.5 billion in the period. We expect the exchange operator to have continued making strides in the last quarter of fiscal 2015, and thus report solid growth.

On the expense side, the company was able to cut its expenditures by 9% in the first three quarters of 2015, primarily due to the cost cuts from the integration of NYSE. Consequently, we expect the company to expand its adjusted EBITDA margin substantially.

We have a $235 price estimate for ICE, which is about 10% lower than the market price.

See Our Full Analysis For IntercontinentalExchange Group

Growth In Trading Revenues

Trade volumes in the third quarter were up due to the strength in commodity derivative trading, mainly brent oil and natural gas, and cash equity trading. The high volumes led to a 12% y-o-y increment in transaction-based revenues to $795 million in the period. ^[2] Further, in November and December, daily trade volumes continued to showcase growth momentum, rising 13% y-o-y and 17% y-o-y, respectively. ((Intercontinental Exchange Reports ICE and NYSE Volume for December 2015, ICE Press Release, January 2016)) In contrast to the first nine months, volumes in the fourth quarter were largely driven by financial derivatives trading. We expect trade revenues to rise in the fourth quarter, in line with the volumes, on the back of oil price volatility and high financial derivative trading.

High Demand For Data Services

ICE generates data service revenues via subscription fees to access its market data, in addition to charges on delivery services and data analytic tools that make raw data more meaningful. Revenues from the segment rose 22% y-o-y in Q3, to stand at $614 million at the end of September. The impressive growth in data services was a result of the acquisition of data service provider SuperDerivatives in 2014, an expanded product offering and addition of new users on its platform. Going forward, we expect data service revenues to rise further helped by the $5.2 acquisition of Interactive Data Corporation (IDC) in 2015.

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2. ICE’s Third Quarterly Report, The SEC, October 2015 [↩]