What To Expect From ICE’s Q4 Earnings

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ICE: Intercontinental Exchange logo
ICE
Intercontinental Exchange

IntercontinentalExchange (NYSE:ICE) had a fairly strong first three quarters of 2018, as the exchange managed to grow its revenue by just over 5% in the first 9 months of the year. This performance is primarily attributable to better than anticipated results across futures, cash equities, listings and Data Services business lines, coupled with efficient cost management and the corporate tax cut. We expect the exchange operator to announce another solid quarter when it reports on February 7. Trading volumes improved across all asset classes such as Cash Equity, Equity Options, and Derivatives. As transaction fees account for over 43% of ICE’s revenue, the robust growth in quarterly volumes is likely to boost the company’s top line. In addition, the improved outlook of its Listing and Data Services segments should further provide decent near-term growth opportunities. This, coupled with multiple acquisitions, should not only broaden its offerings but also expand its presence in the Data Services segment. Consequently, these acquisitions will allow for decent medium term growth. However, we expect ICE to report higher expenses due to its various strategic investments, which should slightly dampen its bottom line in the near term. Below we take a look at what to expect from company’s Q4.

We have an $83 price estimate for Intercontinental Exchange’s stock, which is slightly higher than the current market price. Our interactive dashboard on what to expect from Intercontinental Exchange in Q4 details our expectations for the company’s Q4 earnings; you can modify the key value drivers to see how they impact the company’s results.

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ICE’s equity options volumes saw a massive 44% year on year (y-o-y) jump in Q4, largely due to increased trading volatility. Consequently, its market share improved by nearly 180 basis points (roughly 2%). ICE’s continued strength in the segment – coupled with growth in equity market share – should propel its Q4 results. Cash equities volumes also gained, with more than 45% growth in trading volumes and a roughly 200 basis point increase in market share. The industry-wide volumes saw a 33% increase.

After a minor blip in Q3, derivative trading volumes regained their growth momentum in Q4. These volumes grew by nearly 20% in Q4, largely due to heightened volatility and uncertainty. As a result, most of the trading volumes improved significantly during the quarter. Among commodities, power derivatives were nearly 21% below the year-ago figure due to a tougher year-on-year comparison – mainly due to the fact that energy derivatives saw robust demand towards later half of 2017, with a sharp decline in oil prices due to cuts in production. However, better-than-expected trading volumes in Q4 should drive its near term results.

Data Services Continued Growth Due To Global Demand, Acquisitions

ICE’s Data Services division – which generates nearly 33% of the company’s overall revenues – holds significant growth potential due to increasing demand for data-driven insights and the company’s wealth of market data. This segment has seen consistent growth in the first nine months of 2018, driven by new customer additions, coupled with solid customer retention and acquisitions of TMX Atrium and BofAML Global Research division, partially offset by the divestiture of IDMS and Trayport. Further, with increasing demand for data-driven insights, ICE’s host of acquisitions – BondPoint, Chicago Stock Exchange, and TMC – should not only expand its geographic and product presence, but also offer advanced and diverse fixed income solutions, improve its technology platforms, and provide new data and valuation services. Accordingly, we expect the segment’s revenue to provide for strong growth opportunities in the near term and grow just under 7% annually going forward.

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