Key Takeaways From CME’s Q3 Earnings

by Trefis Team
CME Group
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After a decent first half of the year, CME Group (NASDAQ:CME) performed even better in Q3, with revenues increasing by 6% year-on-year. The revenues from the trading business, after showing moderate growth for most of the year, grew over 7% in the third quarter. Most derivative asset classes – such as interest rate, foreign exchange, metals, agricultural and energy derivatives – continued to garner investor interest, with double-digit growth in comparison to the prior year quarter. Consequently, the exchange’s average daily volumes hit a record 15.7 million contracts, up 10 percent year-over-year. Moreover, the company’s international investments are paying off, with over 17% and 20% growth in trading volumes during Asian and European trading hours, respectively.

Despite the recent declines, the company remains bullish on its Market Data and Information Services segment, with new products in the pipeline with enhanced business intelligence and machine learning capabilities. The company has managed to gain traction by offering data services to its customers largely free of charge until recently, and we expect that many of its existing customers will be willing to pay for more advanced products.

Transaction fees account for over 85% of CME’s revenue. Among the various asset classes, interest rate derivatives grew by 10% during the quarter, driven by the Fed’s interest rate hikes in March and June. The continuous shift in gold and silver prices – due to the strengthening of the U.S. dollar and other economic and political factors in the U.S. – has continued to boost metals derivative volumes. Energy derivatives saw over 17% improvement in volumes as OPEC’s stance on capping production led to price volatility throughout the quarter. Agricultural commodities saw a massive improvement in trading volumes, due to the recent hurricane in Florida. However, equities derivative volumes continued to decline, largely due to a more volatile and favorable trading period last year.

Our $120 price estimate for CME Group is around 10% below the current market price.

See the full Trefis analysis for CME Group.

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