It has been about a month since the last earnings report for MarketAxess (MKTX). Shares have lost about 11.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is MarketAxess due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
MarketAxess Q3 Earnings Beat on Strong Credit Trading Volumes
MarketAxess has reported third-quarter 2024 earnings per share of $1.90, which surpassed the Zacks Consensus Estimate by 4.4%. The bottom line grew 30.1% year over year.
Total revenues of $206.7 million rose 20% year over year. The top line surpassed the consensus mark by a whisker.
The strong quarterly results were driven by improving U.S. high-grade, emerging markets and Eurobonds commission revenues. Higher service revenues added to the upside. Geographic expansion and product diversification drove the average daily volume (ADV) of emerging markets and Eurobonds. However, the upside was partly offset by an elevated expense level.
Quarterly Operational Update
Commission revenues were $180.4 million, which increased 20% year over year, and beat the Zacks Consensus Estimate of $178.7 million and our estimate of $168.7 million. The improvement in the metric was driven by better commission revenues in the U.S. high-grade, Eurobonds and emerging markets. Information services’ revenues improved 10% year over year to $13 million. The figure beat the consensus mark of $12.8 million and our estimate of $12 million. The metric benefited on the back of net new data contract revenues.
Post-trade services revenues of $10.4 million improved 6% year over year, attributable to net new contract revenues. However, the reported figure missed the consensus mark by 2.5%. Revenues from the Pragma acquisition were $7.7 million.
Total expenses of $119.7 million escalated 14% year over year due to higher employee compensation and benefits, technology and communication and marketing and advertising expenses. However, the metric fell marginally short of our estimate of $119.9 million.
MKTX’s operating income rose 30% year over year to $87.1 million, beating our estimate of $74.7 million. EBITDA of $105 million improved 27% year over year and the EBITDA margin improved 270 bps to 50.8%.
Trading Volumes in Detail
The high-grade trading volume of MarketAxess was $449.7 billion, which improved 38% year over year and beat the Zacks Consensus Estimate of $449.7 billion. The ADV of the same product category improved 36% year over year to $7 billion, beating the consensus mark of $6.6 billion and our estimate of $6.3 billion.
However, high-yield trading volume improved 0.3% year over year, while its ADV fell 1% due to a reduced level of credit spread volatility.
Other credit trading volume jumped 49% to $37.6 billion, whereas ADV for the same product category rose 47% year over year to $587 million.
Trading volume and ADV of emerging markets rose 21% and 19%, respectively, on a year-over-year basis. The Eurobonds’ trading volume and ADV grew 49% and 47%, respectively.
Total credit trading volume of $905.3 billion advanced 29% year over year and surpassed the Zacks Consensus Estimate of $886.2 billion. Total credit ADV rose 27% to $14.1 billion, beating the consensus mark of $13.7 billion and our estimate of $13.3 billion.
Total rates’ trading volume jumped 48% and ADV of this product category improved 38% year over year.
Balance Sheet (As of Sept. 30, 2024)
MarketAxess exited the third quarter with cash and cash equivalents of $446.3 million, which declined 1.1% from the 2023 end. Total assets of $1.8 billion decreased 9% year over year.
The company had no outstanding borrowing under its credit facility at the third-quarter end. Total stockholders’ equity of $1.4 billion grew 7.2% from the 2023 end.
Cash Flows
Cash generated from operations amounted to $95.1 million compared to the previous year's figure of $79.2 million. The free cash flow was $86.3 million, which rose 15.4% year over year.
Capital Deployment Update
MarketAxess bought back shares worth $15 million. The capacity of $236.1 million was left under the company’s authorized repurchase program as of Oct. 31, 2024.
Management approved a quarterly cash dividend of 74 cents per share, which will be paid out on Dec. 4, 2024, to shareholders of record as of Nov. 20.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
Currently, MarketAxess has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise MarketAxess has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
MarketAxess belongs to the Zacks Securities and Exchanges industry. Another stock from the same industry, Nasdaq (NDAQ), has gained 4% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.
Nasdaq reported revenues of $1.15 billion in the last reported quarter, representing a year-over-year change of +21.9%. EPS of $0.74 for the same period compares with $0.71 a year ago.
For the current quarter, Nasdaq is expected to post earnings of $0.74 per share, indicating a change of +2.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.3% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Nasdaq. Also, the stock has a VGM Score of F.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
