Trading operations leader Cboe Global Markets (CBOE 0.35%) reported third-quarter earnings on Friday, Nov. 1, that surpassed market expectations. Adjusted EPS of $2.22 came in slightly above the $2.19 analyst forecast and net revenue came in at $532 million, exceeding the consensus estimate of $530.5 million.
The quarter was marked by solid performance across its trading segments, despite facing some challenges due to increased operating expenses. Overall, Cboe showcased its strength in maintaining revenue while navigating a complex financial environment.
| Metric | Q3 2024 | Analyst Estimate | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | $2.22 | $2.19 | $2.06 | 13.8% |
| Net revenue | $532 million | $530.5 million | $480.5 million | 10.7% |
| Operating expenses | $224.6 million | — | $209.3 million | 7.3% |
| Operating margin | 57.8% | — | 56.4% | 1.4 pps |
Source: Cboe Global Markets. Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year.
Business Overview
Cboe Global Markets operates as one of the largest options exchanges in the world and the third-largest stock exchange operator in the United States. Its business model spans various asset classes, including equities, derivatives, foreign exchange (FX), and digital assets, with services spread across North America, Europe, and the Asia Pacific. Cboe's portfolio is enhanced by proprietary products and indices that bolster its market competitiveness.
Recently, the company has focused on strengthening its technological infrastructure and expanding geographically. Integrating AI and machine learning, Cboe aims to improve its trading platforms, enhance market surveillance, and manage risks effectively. The critical success factors include maintaining a diverse operations range, leveraging proprietary products like the VIX and SPX options, and ensuring regulatory compliance across its operations.
Earnings Highlights
Cboe Global Markets saw growth in key segments in Q3. The options segment achieved record net revenue of $320.9 million, a 10% increase from last year, driven by a 13% rise in index options trading volumes. However, its market share decreased year over year from 33.6% to 30.5%, indicating competitive pressures.
North American equities reported a 3% increase in net revenue to $98 million, boosted by stronger industry volumes and improved rates, although market share fell from 12.7% to 10.9%. The Europe and Asia Pacific segment marked a 22% rise in net revenue to $55.6 million, with market share gains in Japan and Australia overcoming a slight decline in Europe.
Futures revenue grew by 17%, primarily due to higher average daily volumes. Global FX saw a 9% increase in net revenue, with the average daily notional value hitting $48.3 billion. Meanwhile, operating expenses rose by 7% to $224.6 million, due to higher compensation, travel, and promotional costs. This increase in expenses, coupled with an effective tax rate jump from 22.9% to 29.3%, suggests potential future margin impacts.
Forward-Looking Statements
Looking ahead, Cboe Global Markets is optimistic, raising its organic net revenue growth guidance for 2024 to 7%-9%. This reflects confidence in further expansion and strategic investments, focusing on technology and international growth. However, increased operating expenses could temper net income growth, stressing the need for efficient cost management.
Investors should monitor developments in Cboe's international expansion efforts, especially in Asia, and the performance of its proprietary products as these remain vital growth areas. Attention should also be paid to any regulatory changes that could impact the company's operations globally.
