Q4 2024 Earnings Summary
- MarketAxess is launching its block trading solution in the U.S. high-grade and high-yield markets in Q2 2025, following successful launches in Emerging Markets and Eurobonds where they saw blocks in EM increase by about 22% and achieved a 90% hit rate in their Eurobond targeted block trading tool, compared to 60-70% in traditional RFQ. This new solution targets a larger portion of the market than all current electronic trading in the high-grade market and has strong dealer support, positioning MarketAxess for significant market share growth.
- Multiple new product deliveries in 2025 are expected to drive market share gains, including a feature-complete portfolio trading (PT) solution with significant feature rollouts in Q1, an enhanced block trading solution, and new dealer-focused platforms like Mid-X and X Pro for dealers starting in Q2. These are launching in a favorable market environment with positive inflows into fixed income funds, a robust new issue market, and high rates of turnover, which are predicted to continue throughout 2025.
- Significant opportunities exist to electronify underpenetrated areas of the fixed income market, such as the block market (largest part not yet electronic), the retail/private banking market, and emerging markets (equivalent in size to the U.S. investment grade and high-yield markets but with less than 5% electronic penetration). MarketAxess is expanding its offerings in these areas, including a platform targeting the private bank market called Access IQ, and aims to have a complete set of electronic trading protocols by mid-2025, positioning it to capture substantial growth.
- Disappointing U.S. high-grade market share in January indicates potential ongoing challenges in maintaining market share in key markets.
- Fee per million is under pressure due to shifts in product mix, including growth in lower-fee protocols like portfolio trading, which could pressure revenue growth.
- Declining market share in U.S. high-yield trading, decreasing from approximately 17%-18% two years ago to near 12% in January, reflects headwinds in that market segment.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +2.7% (from $197.2M to $202.41M) | Modest revenue growth resulted primarily from a slight increase in commission revenue along with steady contributions from Information Services, Post‑trade Services, and Technology Services, reflecting stable underlying market demand compared to Q4 2023. |
Operating Income | +4% (from $77.03M to $79.98M) | Improved operating margins were achieved by a combination of higher revenue and disciplined cost control, which enhanced operational leverage in Q4 2024 relative to the previous period. |
Net Income | –6% (from $69.63M to $65.14M) | Despite higher operating income, net income declined due to increased non‑operating expenses or other charges that weighed on the bottom line, indicating that improvements in core operations did not fully translate into net profit growth. |
Basic EPS | Declined (from 1.84 to 1.74) | The drop in EPS is consistent with the net income decrease and may also reflect adjustments related to share count (e.g., share buybacks or dilution), leading to earnings pressure despite modest revenue gains. |
Net Change in Cash | +300%+ (from $22.78M to $93.20M) | A substantial improvement in cash flow was driven by stronger operating cash flows and more efficient working capital management, underscoring enhanced liquidity generation in Q4 2024 compared to Q4 2023. |
Cash and Cash Equivalents | Increased to $544.48M | Incremental growth in cash reflects disciplined capital management and healthy operational performance, ensuring robust liquidity even with modest revenue changes. |
Shareholders’ Equity | Increased to $1,388.66M | Strengthened equity is attributable to the accumulation of retained earnings and strategic share transactions (including share repurchases), which has bolstered the balance sheet despite mixed net income performance. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Full Year Expenses | FY 2024 | Slightly below $480 million to $500 million | No current guidance | no new guidance |
Total Services Revenue Growth | FY 2025 | no prior guidance | Mid-single digits | no prior guidance |
Total Expenses | FY 2025 | no prior guidance | $505 million to $525 million | no prior guidance |
Effective Tax Rate | FY 2025 | no prior guidance | 23.5% to 24.5% | no prior guidance |
Capital Expenditures | FY 2025 | no prior guidance | $65 million to $70 million | no prior guidance |
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Market Share Goals and Fee Impact
Q: How will you define success in market share in 2025?
A: Success will be defined by significant market share gains in U.S. high-grade and high-yield markets in 2025, driven by the rollout of multiple protocols such as portfolio trading, block trading, and automation solutions. These initiatives are expected to have sizable impacts on both market share and revenue, despite portfolio trading typically coming with lower fees per million due to larger trade sizes. The company remains confident that offering a complete suite of trading protocols will enhance competitiveness and drive revenue growth. -
High-Yield Market Share Decline
Q: Why has high-yield market share decreased, and what's the growth outlook?
A: High-yield market share has declined from 17-18% two years ago to near 12% in January, primarily due to tight spreads, low volatility, and reduced ETF arbitrage opportunities in 2024. Some trading desks closed down, and ETF market makers pulled back. However, inflows into high-yield funds continue, and portfolio trading is increasing in high yield, now up to 8% of the market. The upcoming high-touch block trading solution is expected to attract high-yield traders concerned about information leakage, potentially improving market share moving forward. -
Block Trading Launch and Dealer Support
Q: What's the status of the block trading launch in the U.S.?
A: The company has successfully launched a high-touch block trading solution in emerging markets and Eurobonds, leading to a 22% increase in EM block trading. They plan to launch an enhanced block trading solution in U.S. high-grade and U.S. high-yield at the beginning of Q2. Dealers have been very supportive, appreciating the reduced information leakage and potential for aggressive pricing due to targeted inquiries. So far, there are 65 active clients using the block trading tool, with over $1.2 billion in volume since December. -
Growing Share in High-Grade Markets
Q: How will you grow market share in high-grade markets?
A: The company plans to grow market share through the introduction of multiple trading protocols tailored to different market environments. This includes launching a block trading solution in U.S. high-grade at the beginning of Q2, enhancing the portfolio trading solution to be feature-complete in Q1, and expanding dealer-to-dealer offerings. The favorable macro environment, with robust new issue markets and high turnover rates, supports this growth strategy. -
Electronification Opportunities
Q: Where is there room left to electronify the market?
A: Significant opportunities remain to electronify the block trading market, which is the largest unelectronified segment. The company is focusing on offering electronic solutions that replicate the confidentiality of phone and chat trading to minimize information leakage. Other areas include the retail space and emerging markets, the latter of which has electronic penetration under 5%, representing a huge opportunity. Data and analytics are crucial to facilitating this electronification. -
Portfolio Trading Growth Prospects
Q: Can you grow share in portfolio trading if it stays at 10% of activity?
A: Despite portfolio trading activity stabilizing around 10% of the market, the company believes it can increase its market share within this segment. With new feature rollouts scheduled for Q1, they're enhancing competitiveness in portfolio trading. The liquidity in portfolio trades is similar across venues, so improvements in capabilities and analytics can attract more volume. -
RFQ Hub Acquisition and Cross-Asset Expansion
Q: Why acquire the rest of RFQ Hub, and is cross-asset a priority?
A: Acquiring the rest of RFQ Hub allows the company to offer a multi-asset platform, including ETFs and derivatives like futures and equity derivatives. This aligns with client demand for cross-asset trading capabilities. The key synergy is the ability to redistribute this successful platform to their large client network, enhancing their offerings and potentially driving growth. -
Scaling the Rates Platform
Q: How will you scale the rates platform to contribute more?
A: The company plans to scale the rates platform by introducing innovative solutions such as algorithmic trading tools and an RFQ solution launching in 2025. They're migrating their algos onto the Pragma platform, offering clients advanced tools for large-sized orders without market impact. This will enhance functionality in a market that has seen little innovation and relies heavily on traditional electronic RFQ. -
Fee per Million and Duration Sensitivity
Q: Are current fee per million levels the bottom, or can they drop further?
A: It's hard to call a bottom due to variable trading behaviors and macro conditions. Changes in the rate environment, central bank decisions, and trading activity can influence duration and yields, which affect fee per million. For instance, a one-year increase in weighted average years to maturity can be worth about $15 in high-grade fee per million. The company focuses on delivering functionality and doesn't see significant fee pressure from clients.
Research analysts covering MARKETAXESS HOLDINGS.