MarketAxess (MKTX) Up 1.7% Since Last Earnings Report: Can It Continue?


IIt’s been about a month since the last MarketAxess (MKTX) earnings report. Stocks rose about 1.7% during that time, outperforming the S&P 500.

Will the recent positive trend continue until its next earnings release, or is MarketAxess likely to experience a pullback? Before we dive into how investors and analysts have reacted in recent times, let’s take a look at the latest earnings report to get a better understanding of the important factors.

MarketAxess Q2 Profits above estimate, fall Y / Y

MarketAxess Holdings ‘profit of $ 1.77 per share was 6% higher than Zacks’ consensus estimate, but was down 20% year-over-year.

Similar to earnings, revenue of $ 176.3 million was down 5% year over year. The same, however, beat Zacks’ consensus estimate by 0.3%.

Low trading volumes decrease income

The bond trading volumes of this electronic bond trading platform operator suffered from low levels of volatility in the credit market. The year-to-year comparison was very difficult, as last year the volatility of credit spreads was greater and the credit spreads of investment grade bonds were also wider.

Widening credit spreads mean higher risk in the market, which is when bonds look more attractive. In 2020, the company saw huge corporate debt issuances. These factors increased bond trading, which in turn contributed to the growth in volumes, revenues and profits for the company.

With the economic recovery this year, bond trading has declined somewhat. In the June quarter, transaction volumes fell 9.8% to $ 668.9 billion in the total credit category. Rate swaps fell 7% to $ 888.3 billion. MarketAxess entered rate trading in 2019 with its acquisition of LiquidityEdge, an electronic marketplace for US Treasuries.

The company earns commission and fee income from transactions executed on its platforms. Thus, the drop in the volume of transactions weighed on its income from commissions and fees, which constitute 90% of its income. Commission income decreased 9.1% to $ 156.4 million. Commission income included $ 1.1 million generated by MuniBrokers, which was acquired in April 2021.

All other revenue (10% of total revenue), which includes information services, post-trade services and other revenue, climbed 57% year-over-year to $ 19.9 million. dollars. This jump was mainly due to the $ 3.8 million in regulatory trade reporting revenue generated by the Regulatory Reporting Hub, which was acquired from Deutsche Börse Group in November 2020. A weaker dollar against the British pound led to losses. earnings earnings of $ 1.3 million.

High expenses weigh on margins

As revenues declined, operating expenses rose 10.5% to $ 89.2 million, putting pressure on margins. Investing in the company’s growth initiatives, including geographic expansion, trade automation, new trading protocols, and the transition to self-clearing, drove up spending.
As a result, the operating margin contracted 700 basis points year over year to 49.4%.

How have the estimates evolved since?

It turns out that revised estimates have trended downward over the past month. The consensus estimate has changed to -14.01% due to these changes.

VGM scores

Currently, MarketAxess has a good Growth Score of B, although it is way behind the Momentum Score front with an F. By following the exact same price, the stock has been awarded a an F rating on the value side, which places it in the fifth quintile for this investment strategy.

Overall, the stock has an overall VGM score of D. If you’re not strategy-focused, this score is the one you should be interested in.

Outlook

The estimates have had a general downward trend for the stock, and the magnitude of these revisions indicates a downward change. It’s no surprise that MarketAxess has a Zacks # 5 (strong sell) rank. We expect the security to perform below average in the coming months.

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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.

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