ICE 2016 In Review: Inorganic Growth Drives An Otherwise Sluggish Year For The Exchange

IntercontinentalExchange Group (NYSE:ICE) has seen 19% increase in its revenue year to date, with a similar surge in its stock price since the beginning of the year. We attribute this performance primarily to the growth in the company’s data services segment, driven by a series of acquisitions including SuperDerivatives , IDC and Trayport. The demand for data-driven insights and analytics-driven recommendations has increased substantially in the last couple of years. With industry-wide trading volumes declining due to deteriorating macro conditions for the most part of the year, the company’s 6% growth in its trading revenues is not bad. This growth was supported by the growth in financial, metal and energy derivatives volumes.

Strengthening Data Services Segment With Acquisitions Is ICE’s Current Focus

With increased demand for data services and competitors like NASDAQ also cashing in on this demand, the company’s acquisitions in this regard seem to be a good strategic fit. The company has witnessed double the revenue contribution from data services in the current year. With 30% attributed to organic growth, the rest has been supported by the company’s acquisitions to cater to the increasing demand of data services, augmenting its existing capabilities.

We believe the company will be able to expand the markets served by the company, add technology platforms and increase risk management, new data and valuation services. This is likely to propel further growth in this segment in future.

Trading Volumes Show Slight Improvement Due To Various Product Offerings

Energy derivatives volumes have gone up this year owing to the oil-price rally from OPEC’s decision to limit supply after an extended period of excess supply and weak pricing. Even metals continued to be in high demand as a safe investment product for investors amid uncertain macro conditions. Interest rate derivatives did well during the first half of the year, potentially due to the increased volatility from the Fed’s interest rate hike towards the end of 2015. However, the third quarter saw a dip in volumes. We expect the volumes to rise with the Fed’s  and planned hikes. The recently concluded U.S. presidential election is likely to add volatility to the market, which could lead to an increase in trading volumes across all product lines.

Please refer to the full Trefis analysis for Intercontinental Exchange.

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