What To Expect From ICE’s Q4 Earnings

IntercontinentalExchange (NYSE:ICE) had a fairly strong first three quarters of 2017, as the exchange managed to grow its revenue by 4% in the first 9 months of the year, and its stock price rallied as well. This performance is primarily attributable to the growth in the company’s Data Services segment. We expect the exchange operator to announce somewhat mixed Q4 earnings when it reports on February 7. Trading volumes saw a dip across all asset classes such as Cash Equity, Equity Options and Derivatives. Since transaction fees account for over 40% of ICE’s revenue, a decline in quarterly volumes is likely to affect the company’s top line. ICE has witnessed increased revenue contribution from data services in the last few years. As industry competition has intensified, the exchange’s focus on strengthening its Data Services segment makes sense as a way to cover up for the muted performance by the trading segment.

We have a $70 price estimate for Intercontinental Exchange’s stock, which is about in line with the current market price. Our interactive dashboard shows our expectations for the company’s Q4 earnings; you can modify the key value drivers to see how they impact the company’s results.

ICE’s equity options volumes saw a 2% year on year (y-o-y) decline in Q4, with a 130 basis point (3%) dip in its market share. The industry-wide equity options daily trading volumes grew by 6% during the period. ICE’s market share decline is likely due to competitor NASDAQ’s strong position in equity options after the acquisition of ISE in 2016. 

Cash equities volumes suffered the most, with a more than 14% drop in trading volumes and a 110 basis point drop in market share. The industry-wide volumes saw a 10% decline.

After a solid performance in the first three quarters of 2017, derivative trading volumes saw a year-over-year decline in Q4. Commodity volumes declined by 2%, and financial derivatives saw an 8% dip. Among commodities, energy derivatives were 2% below the year-ago figure. This is largely due to the fact that energy derivatives saw strong demand towards the end of 2016, with the surge in oil prices due to cuts in production. However, volumes did remain flat compared to the previous quarter.

Due to the rate hike in June 2016, and the expectations of further rate increases by the end of 2016 (which did occur), IntercontinentalExchange’s interest rate derivative volumes registered a sharp increase in Q4 2016. Consequently, Q4 2017 saw a decline in financial derivatives volumes due to the difficult year-on-year comparison.

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