Virtu Financial (VIRT) Up 1.1% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Virtu Financial (VIRT). Shares have added about 1.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Virtu Financial due for a pullback? 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.
Virtu Financial Q2 Earnings Miss on Lower Volumes
Virtu Financial reported second-quarter 2023 adjusted earnings per share (EPS) of 37 cents, which missed the Zacks Consensus Estimate by 7.5%. The bottom line dropped 49.3% year over year.
VIRT’s adjusted net trading income of $278.7 million in the second quarter missed the consensus mark by 4.1%. The top line declined 22% year over year.
The company’s results received a blow from lower pan-European volumes and declining bid offer spreads and retail participation. The results were partially offset by improved interest and dividend income.
Q2 Performance
Revenues from commissions, net and technology services declined 19.7% year over year to $109.5 million. The metric missed our estimate of $114.8 million. Interest and dividends income increased more than two-fold year over year in the second quarter to $98 million. The metric surpassed our estimate by 109.9%
Adjusted EBITDA amounted to $122 million, which fell 41.6% from the prior-year quarter. The adjusted EBITDA margin declined to 43.8% from 58.6% a year ago.
Total operating expenses of $471.4 million increased 9.4% from the year-ago figure. VIRT recorded increases in communication and data processing, interest and dividend and financing interest expense. This was partially offset by lower brokerage, exchange and clearance fees, payments for order flow and depreciation and amortization expenses.
Segmental Update
Market Making: The segment reported an adjusted net trading income of $193.2 million, which declined 23.9% from the prior-year figure. The metric missed our estimate by 5.9%. The declining bid offer spreads and participation rate of retail customers affected the quarterly results. Segmental total revenues fell 6.3% to $405.3 million in the second quarter of 2023. However, the metric beat our estimate by 5.4%.
Execution Services: The adjusted net trading income of the segment declined 17.5% to $85.5 million in the second quarter. Total revenues declined 16.7% in the quarter under review to $109.1 million. However, the metric beat our estimate by 2.5%. The results were affected by declining pan-European volumes in the second quarter.
Financial Update (as of Jun 30, 2023)
Virtu Financial exited the second quarter with cash and cash equivalents of $698.7 million, which declined from the 2022-end level of $982 million. Total assets of $13,389.7 million increased from $10,583 million at 2022-end.
Long-term borrowings, net, amounted to $1,778.3 million, down from the 2022-end figure of $1,796 million. Short-term borrowings, net, at the second-quarter end were $111.7 million, up from the 2022-end level of $4 million.
Total equity was $1,552.3 million, down from $1,651.4 at 2022-end.
Share Repurchase and Dividend Update
In the quarter under review, Virtu Financial (as part of its share repurchase program) bought back shares worth $42 million. It had $203.3 million remaining under its share buyback authorization for future purchases of Class A Common Stock shares and Virtu Financial Units.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -5.31% due to these changes.
VGM Scores
At this time, Virtu Financial has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Virtu Financial has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Virtu Financial, Inc. (VIRT) : Free Stock Analysis Report
