MarketAxess Earnings: Lower Trading Volume Drives Trading Revenue and Earnings Lower

Wide-moat MarketAxess MKTX reported second-quarter results that were in line with our expectations, as weak trading volume was only partially offset by strong data and fixed-fee growth. Revenue declined 1.3% from last year and 11.5% from a strong first quarter to $180 million. Net income declined 10.6% to $59.9 million, in part due to foreign currency translation losses of $1.3 million versus a gain of $5.5 last year. While these results were not impressive, the decline in revenue was driven by trading volume, which is inherently volatile from quarter to quarter. As we incorporate these results, we do not expect to materially alter our $350 per share fair value estimate for MarketAxess.

The decline in net revenue was driven by lower variable transaction fees, which declined 6.5% from last year and 16.3% sequentially to $123 million. The decline was due to both lower trading volume and lower average credit fee per million. Average daily volume, or ADV, in credit trading was down 0.6% from last year and 11.7% sequentially to $754 billion per day. Eurobonds continue to be a source of strength for MarketAxess, with ADV rising 30.2% from last year, helping offset weakness in U.S. high grade and high yield, which saw ADV decline 1.8% and 16.8%, respectively.

On a positive note, recurring revenue sources performed better than expected during the quarter. Fixed distribution fees increased 11.7% from last year as the number of firms paying to use MarketAxess’ platform continues to rise. The firm’s data revenue also maintained its strong momentum as revenue increased 24% year over year and 5.8% sequentially to $11.6 million. MarketAxess’ overall nontransaction revenue grew 12.4% to $56.4 million. While this is still a minority of the firm’s total revenue, the growth of recurring revenue sources helps stabilize results, which are generally volatile on a quarter-to-quarter basis. Additionally, we continue to see a long runway for growth for the company’s data assets.