Q2 2024 Earnings Summary
- Cboe's expansion into international markets, particularly Europe, with the launch of single stock options and increased participation from major clients like Interactive Brokers and IMC, is expected to drive long-term growth.
- Cboe Global Cloud is experiencing significant growth, with nearly 80% of customers and revenue coming from outside the U.S., indicating strong international demand and contributing to future revenue growth.
- Confidence in achieving revenue growth targets for Data and Access Solutions, driven by doubling new sales in Q2 versus Q1, new products, pricing strategies, and substantial investments in leading-edge technology that improve access, data, and insights for customers.
- European index options expansion is progressing slowly, with low trading volumes of only 850 contracts a day in June . Management acknowledges that building the market will take time and patience, indicating potential uncertainty in achieving growth .
- Cboe Global Cloud's contribution is still not meaningful, being in the early stages with most growth outside the U.S. . Longer sales cycles and timing issues are potentially impacting revenue growth .
- Data and Access Solutions revenue growth is slowing, with organic net revenue increasing only 5% in Q2, down from 7% year-to-date . Management cites timing factors, longer sales cycles, and customer consolidation impacting revenues, leading the company to expect growth at the lower end of guidance .
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International Index Options Expansion
Q: How big is the overseas index options opportunity?
A: Cboe sees significant potential for international growth in index options, driven by secular trends like increasing global assets benchmarked to U.S. capital markets. Currently, only 2–3% of SPX trading comes from global markets, indicating substantial room for expansion. The addition of three retail brokers this year and a focus on both institutional and retail clients bolster confidence. Upcoming products like VIX options on futures, launching in 2024–2025, are expected to attract international institutional clients who cannot access U.S. security-based options. -
Data and Access Solutions Performance
Q: Why did the Data and Access Solutions segment underperform in Q2?
A: The segment grew around 7% year-to-date, but Q2 was softer due to timing factors like delayed enterprise sales, longer sales cycles, and timing of cash collections. A large back bill in Q2 2023 made comparisons harder, and customer consolidation had a slight revenue impact. Confidence in hitting the lower end of the 7–10% growth guidance comes from new sales—ADV sales doubled in Q2 versus Q1—new products, pricing adjustments, and technology enhancements. -
Robinhood's Index Options Launch
Q: Will crypto ETF options be part of Robinhood's index options launch?
A: Crypto ETF options are likely a phase two development due to regulatory and structural hurdles. The initial launch in the fourth quarter focuses on cash-settled index options, which should appeal to Robinhood's 24 million funded accounts, particularly active retail traders. Cboe plans joint marketing and educational efforts with Robinhood to capitalize on this opportunity. -
July Volatility and Customer Mix
Q: What's driving increased activity and customer mix changes in July?
A: July saw a pickup with records across the volatility toolkit, driven by increased market volatility. The mix shift is in product usage rather than new client types. There's strong engagement from existing customers and interest from new ones, including more quantitative investment strategy desks and liquidity providers using 0DTE SPX options to hedge positions. The anticipated addition of Robinhood is also particularly exciting. -
Capital Allocation and M&A
Q: Is Cboe building cash reserves for potential M&A?
A: While not commenting on specific opportunities, Cboe acknowledges that building up cash—currently around $600 million—provides flexibility for potential acquisitions. Future M&A will be more selective and significant, focusing on strategic alignment and avoiding the complexities of smaller deals that strain technology resources. -
Index Options Revenue Capture Rate
Q: What's affecting the revenue capture rate in index options?
A: The slight pullback in the revenue capture rate is due to product mix shifts, not pricing changes. Increased trading in products like RUT options, which have different capture rates compared to SPX, affects the overall rate. The company expects this mix-driven variability to continue but has nothing specific to signal for the forward outlook. -
VIX Product Line Expansion
Q: What are expectations for the new VIX products?
A: The upcoming VIX options on futures aim to attract customers who cannot access U.S. security-based options, both internationally and domestically. This product allows extension into shorter-dated tenors, tapping into the trend toward shorter maturities. While building a new customer base takes time, Cboe is excited about the product's potential in 2024–2025. -
European Index Options Initiative
Q: How confident is Cboe in European index options growth?
A: Cboe is taking a long-term view on growing the European market by introducing U.S.-style on-exchange, on-screen options trading. Milestones include launching single stock options and onboarding major clients like Interactive Brokers and IMC. Average daily volume reached 850 contracts in June, holding steady into July. Leveraging existing infrastructure allows patience as the market develops. -
Cboe Global Cloud Growth
Q: How significant is Cboe Global Cloud's contribution?
A: While specific contributions aren't disclosed, Cboe Global Cloud is strategically important, with nearly 80% of customers and revenue coming from outside the U.S.. It enables clients to access data and services more efficiently, supporting global expansion and revenue diversification. Investments will continue to enhance the platform and bring products closer to customers. -
VIX and SPX Mix Ahead of Elections
Q: How do you see the mix between SPX and VIX options ahead of elections?
A: Investors are using Cboe's volatility toolkit to manage both upside and downside risks. During volatility spikes—like when VIX exceeded 19.5—customers monetize or roll their VIX positions. SPX options continue to play a key role in managing exposure. Upcoming products like Variance futures and VIX options on futures will further enhance offerings before the U.S. elections.