ICE Likely To Announce Better Results Under Increased Demand For Data Services And Surge In Trading Volumes

IntercontinentalExchange (NYSE:ICE) will announce its Q4 earnings on Tuesday, February 7th. The company’s revenues grew by about 19% in the first nine months of 2016, and the consensus estimates suggest higher growth for the fourth-quarter. The year 2016 wasn’t very impressive for trading as investors exhibited inclination towards lower-risk assets amid deteriorating financial conditions during the first half of the year. However, increased volatility in derivatives market across multiple asset classes including commodities and financial derivatives has attracted investors’ attention. This drove nearly 11% growth in the commodities and financial trading volumes for the fourth quarter.

The demand for data-driven insights and analytics-driven recommendations has increased substantially in the last couple of years. We believe the company’s acquisitions of SuperDerivatives , IDC and Trayport has helped it  expand its market reach, add technology platforms and increase risk management, new data and valuation services. As the competition for trading has intensified, the exchange’s move in strengthening its data services segment seems a good move to sustain the growth momentum in its top-line.

Increased Volatility Driving Trading Volumes

The clearing and transaction fees, which contributes around 55% of ICE’s overall revenues, grew around only 5% in the first nine months of 2016. This was driven by lack of investors’ interest in trading under uncertain macro conditions and investors looking for safer investment option during the first half of the year. The consistent loss of market share for over a year has continued to affect the equity products’ trading volumes.

However, the commodities and financial derivative trading volumes continued their phenomenal growth trend and this is likely to boost the segment’s revenues. Moreover, the U.S. economy has seen improvement in GDP and employment rates and the recently concluded U.S. presidential election has contributed to increased volatility as well. Also, the company has been capturing the market share over the last three months and this has reduced the decline in equity derivatives’ trading volumes. We expect all this to reduce the negative impact of decline in equity trading on the growth in trading commissions.

Data Services Revenue Up Due To Acquisitions And Increased Demand

IntercontinentalExchange’s data services segment saw  over 40% (~$850 million) growth in revenues for the first three quarters, around $600 million of which was supported by a series of acquisitions. The segment has doubled its percentage contribution to the company’s overall revenue this year to around 35%.

We expect this trend to continue driven by increased demand for data-related products and services.

Please refer to the full Trefis analysis for Intercontinental Exchange.

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