ICE Earnings Takeaways: Data Segment Drives Q4 Results

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ICE: Intercontinental Exchange logo
ICE
Intercontinental Exchange

IntercontinentalExchange Group (NYSE:ICE) announced its fourth quarter fiscal 2015 earnings on Thursday, February 4. Despite transaction and clearing fees remaining flat in the quarter, total revenues were up 5% year-on-year (y-o-y) to $1.2 billion. With the acquisition of Interactive Data Corporation (IDC) and Trayport, data service fees were the main driver of growth in the quarter, at 35% y-o-y. ((Intercontinental Exchange Reports Q4 Results, ICE Press Release, December 2015))

On the expense front, operating costs in Q4 were slightly higher compared to the first three quarters. This was primarily on account of acquisition-related expenses and higher compensation and benefits. However, for the full year 2015, ICE managed to curb its expenses to $1.58 billion, down 4% y-o-y. Consequently, our estimate of company-wide adjusted EBITDA margin improved by 6% points to 63.63% in 2015.

We have a $235 price estimate for ICE, which is slightly lower than the current market price.

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See Our Full Analysis For IntercontinentalExchange Group

Trading Revenues Remain Lackluster

The company increased its product offerings across commodities and oil products in 2015, leading to solid growth in commodity markets. Moreover, the continued volatility in oil prices and high demand for derivatives for hedging resulted in 3% revenue growth from commodities. In contrast, financial derivative revenues were down in the year despite higher average daily volumes (ADVs). This was mainly due to lower revenues from equity option and credit default swaps. [1] As a result, net transaction revenues remained flat in 2015, at $1.9 billion. Going forward, volumes will likely be driven upwards by uncertainty around the level of oil prices, the strength of the dollar, central bank actions and global economic trends. Consequently, trade revenues for ICE could rise considerably in the first quarter of 2016.

Data Segment Witnesses Impressive Growth

ICE has recently acquired a number of companies to boost its data service revenues. These acquisitions are aimed at creating a seamless distribution network to support access to data that can be licensed and packaged. Subsequently, data service revenues increased 35% y-o-y to $257 million in Q4 and 26% y-o-y to $871 million in the full year 2015. The company expects data revenues to grow to $470 million to $480 million in the first quarter of 2016 as ICE continues to use IDC’s technology and expertise to leverage the fixed income markets, along with benefiting from new customer relationships. ((Intercontinental Exchange Q4 Earnings Transcript, ICE Press Release, December 2015))

Listing Revenues Rise

Listing revenues rose 10% y-o-y to $405 million in 2015, as NYSE remained a global leader in initial public offerings (IPOs) across industries. Moreover, NYSE again led in global proceeds raised for the fifth consecutive year. However, ICE faces stiff competition in this domain from companies like BATS and NASDAQ. [2] Consequently, we expect moderate growth in listing revenues in Q1 2016.

 

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Notes:
  1. Intercontinental Exchange Q4 Earnings Presentation, ICE Press Release, December 2015 []
  2. Intercontinental Exchange Q4 Earnings Transcript, ICE Press Release, December 2015 []