MarketAxess (MKTX) Q4 Earnings Beat on Higher Commissions
MarketAxess Holdings Inc. MKTX reported strong fourth-quarter 2023 results, aided by higher commissions and trading volumes. Continued solid Eurobonds’ performance further aided its business. The positives were partially offset by an elevated expense level and a lower High-yield credit trading.
Its fourth-quarter 2023 earnings per share of $1.84 beat the Zacks Consensus Estimate by 7%. Moreover, the bottom line increased from $1.58 per share a year ago.
Total revenues increased 10.9% year over year to $197.2 million in the quarter under review. Also, the top line beat the consensus mark by 0.7%.
Full Year Result
It recorded revenues of $752.5 million in 2023, up 4.8% from a year ago. Also, the bottom line rose 3% year-over-year to $6.85 per share. Operating income declined 3.6% from a year ago to $315 million.
MarketAxess Holdings Inc. Price, Consensus and EPS Surprise
MarketAxess Holdings Inc. price-consensus-eps-surprise-chart | MarketAxess Holdings Inc. Quote
Quarterly Operational Update
Commission revenues increased 8.5% year over year to $171.9 million in the fourth quarter and marginally beat our model estimate of $171 million. Information services revenues registered a record $11.9 million, which increased 14.6% year over year and marginally beat our estimate of $11.3 million on the back of net new data contract revenues. It was also supported by the foreign currency fluctuations.
Meanwhile, post-trade services revenues of almost $11 million increased 24.1% year over year in the quarter under review, beating our estimate of $9.8 million due to price increases. Revenues from the Pragma acquisition were $7.6 million in the fourth quarter.
Total expenses of $120.2 million escalated 19.9% year over year, surpassing our estimate of $114.7 million. The year-over-year growth was primarily due to increased employee compensation and benefits, technology and communication expenses, and G&A and occupancy costs.
MarketAxess reported an operating income of $77 million, which decreased 0.8% year over year in the fourth quarter and missed our model estimate of $77.6 million. EBITDA margin of 50% was down from 51.7% a year ago.
Trading Volumes
MarketAxess’ high-grade trading volume jumped 15.1% year over year to $385.3 billion, beating our estimate by 5%. The average daily volume (ADV) of the same product category rose 13.3% year over year to $6.2 billion and beat our estimate of $5.9 billion. However, high-yield trading volume declined 6.9% year over year to $102.5 billion.
Other credit trading volume of $33.9 billion rose 7.8% year over year, whereas ADV of the same product category jumped 6% year over year to $546 million in the fourth quarter. The emerging markets’ trading volume and ADV rose 11.6% and 9.8%, respectively, on a year-over-year basis. Trading volume and ADV of MKTX’s Eurobonds rose 12.6% each, year over year.
Total credit trading volume increased 10.4% year over year to $814.4 billion in the quarter under review, while ADV reached $13.1 billion (up 8.9% year over year). Total rates’ trading volume and ADV declined 8.6% and 10.1%, respectively, year over year.
Balance Sheet (as of Dec 31, 2023)
MarketAxess exited the fourth quarter of 2023 with cash and cash equivalents of $451.3 million, which increased from the 2022-end figure of $430.7 million. Total assets of $2 billion increased from $1.6 billion at 2022-end.
The company had no outstanding borrowing under its credit facility at the fourth-quarter end. Total stockholders’ equity rose from $1.1 billion at 2022-end to $1.3 billion at the fourth-quarter end.
Cash Flows
MarketAxess generated cash from operations of $141.7 million in the fourth quarter, up from $134.2 million a year ago. Free cash flow of $94.9 million marginally increased from $94.1 million a year ago.
Dividend Update
Management approved a quarterly cash dividend of 74 cents per share, an increase from 72 cents, which will be paid out on Feb 28, to shareholders of record as of Feb 14.
2024 Guidance
Management expects revenues from the Pragma acquisition to grow in mid-single digits, while expenses are expected within $33-$35 million.
It expects total expense (including the Pragma acquisition) to be between $480 million and $500 million for this year, the mid-point of which indicates a 12% increase from the 2022 reported figure.
Capital expenditure was estimated between $60 million and $65 million for 2024. The effective tax rate is likely to be 24-25%.
Zacks Rank & Other Key Picks
MarketAxess currently has a Zacks Rank #2 (Buy). Some other top-ranked stocks in the broader Finance space are Alerus Financial Corporation ALRS, Cboe Global Markets, Inc. CBOE and Axos Financial, Inc. AX. While Alerus Financial currently sports a Zacks Rank #1 (Strong Buy), Cboe Global and Axos Financial carry a Zacks Rank #2 each. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus mark for Alerus Financial’s 2024 full-year earnings is pegged at $1.63 per share, which indicates 5.2% year-over-year growth. ALRS beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 14.4%.
The Zacks Consensus Estimate for Cboe Global’s 2024 full-year earnings indicates 6.1% year-over-year growth. Also, the consensus mark for CBOE’s revenues in full-year 2024 is pegged at more than $2 billion, suggesting 5.7% year-over-year growth.
The Zacks Consensus Estimate for Axos Financial’s fiscal 2024 full-year earnings suggests an 11.6% increase from a year ago. AX beat earnings estimates in all the past four quarters, with an average surprise of 11.6%.
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