Key Takeaways From Intercontinental Exchange’s Q1 Earnings

After a decent performance through 2017, Intercontinental Exchange (NYSE:ICE) reported somewhat mixed results for Q1. Revenue, which slid marginally year-over-year in 2017, saw a 7% growth in Q1, while EPS declined by 6%. In line with our expectations, the exchange’s growth in trading volumes across asset classes, such as Cash Equity, Equity Options, and Derivatives, propelled the company’s top line. The improvement in US macro conditions has contributed to the market volatility and consequently, driven the trading volumes. The company remains bullish on its Data Services segment, as these services are complementary to its core trading business, and a strong global footprint should drive sustained growth.

We have an $83 price estimate for Intercontinental Exchange’s stock, which is about 18% ahead of the current market price. We have also created an interactive dashboard which shows the forecast trends.  You can modify the key value drivers to see how they impact the company’s revenues, bottom-line, and valuation.

Growth In Trading Volumes Across All Asset Classes

ICE’s clearing and transaction fees, which contributed around 57% of its overall revenues, dipped by nearly 13% from the prior year quarter. Equity option volumes saw a 62% year on year (y-o-y) growth in Q1, with a 310 basis point increase in its market share. The industry-wide equity options daily trading volumes grew by 34% during the period. The growth in volumes was due to increased volatility in the first quarter.

Cash equities volumes also gained, with a more than 9% growth in trading volumes and a marginal drop in market share.

After a solid performance in the previous year, derivative trading volumes saw a 3% year-over-year growth in Q1. Commodity volumes grew by 4%, and financial derivatives saw a 3% rise. Among commodities, energy derivatives were 1% above the year-ago figure.

Due to the rate hikes over the past few months, and the expectations of further rate increases, Intercontinental Exchange’s interest rate derivative volumes registered a sharp increase in Q1.

Data Services Continued Growth Due To Global Demand, Acquisitions

ICE’s Data Services business generates around 33% of the company’s overall revenues. This business generated around $520 million in Q1. With increasing demand for data-driven insights and analytics-driven recommendations, the company’s acquisitions such as YellowJacket, NYSE, Interactive Data, and TMX Atrium have helped it expand its market reach and add technological capabilities as well as new data and valuation services. As industry competition has intensified, the exchange’s focus on strengthening its Data Services segment makes sense as a way to offset losses from declines in trading commissions.