CME Earnings: Strong Volume and Higher Pricing Drive Double-Digit Revenue and Earnings Growth

Wide-moat-rated CME CME Group reported strong second-quarter results as high trading volume in commodity futures more than offset a decrease in equity futures trading. Net revenue increased 10% from last year to $1.36 billion, while net income increased 17.4% to $777 million. CME’s performance in the first half of 2023 has been impressive, but we generally advise against placing too much weight on any individual quarter’s results. CME’s revenue is primarily transactional, and volume can significantly vary from quarter to quarter based on market conditions. As we incorporate these results, we do not plan to materially alter our $215 fair value estimate. We see the shares as only modestly undervalued.

Transactional revenue, which makes up more than 80% of CME’s total revenue, rose 9.1% from last year to $1.12 billion. The increase in trading revenue was primarily driven by better average pricing as firmwide average daily volume fell 1% from last year’s quarter to 22.9 million contracts. While ADV was down firmwide, agricultural and metal futures saw 34% and 27% increases in ADV, respectively, to 1.75 million and 0.61 million. While these asset classes make up a small percentage of CME’s total volume, the average price on these contracts is nearly double the firmwide average. Additionally, while equity futures ADV was down 20% to 6.2 million, this decrease came primarily from CME’s smaller and cheaper micro equity futures contracts, which saw a 37% decrease in ADV to 2.1 million.

These trends in volume were major drivers behind CME’s average revenue per contract rising 11.9% from last year to $0.724. In addition to mix shift, the firm’s average fee benefited from an unusually large price hike this year, with average price per contract increasing in almost every asset class. While we do not expect CME to retain all of this price improvement in the coming quarters, it should see some long-term benefit from higher pricing.