Intercontinental Exchange Earnings: Strong Trading Revenue Offsets the Pain From Low Mortgage Volume

Wide-moat Intercontinental Exchange ICE reported decent earnings as volatile markets drove strong trading volume and its fixed-income execution and credit default swap businesses showed improved results. The company reported net revenue of $1.9 billion, effectively flat from a strong quarter last year and up 7.2% sequentially. EPS was also flat year over year and up 54% from last quarter at $1.17. As we incorporate these results, we do not plan to materially alter our $131 fair value estimate.

Intercontinental’s exchange business grew 1% from an unusually strong quarter last year and 11.7% from last quarter to $1.1 billion. The sequential increase in revenue was primarily from strong performance in the firm’s energy and financial futures, with revenue from these product categories increasing 24% and 28%, respectively, from the fourth quarter. Recurring revenue in the exchange segment also increased 5% year over year as an 8% increase in data revenue was offset by 2% decreasing in listing fees. Listing revenue is being affected low IPO volume industry wide, as well as Nasdaq’s strong performance in attracting new company IPOs. We expect this line item to be a headwind for the exchange segment until capital market conditions strengthen.

Intercontinental’s mortgage technology business also faces headwinds, with weak conditions in the mortgage origination industry pressuring results. The segment’s revenue decreased 23% from last year and 5% from last quarter $236 million. The main culprit was the segment’s per mortgage transaction fees, which declined 53% from last year. Higher interest rates have caused mortgage volume in the U.S. to plummet, having an impact on Intercontinental’s business in the process. That said, Intercontinental’s transactional revenue has outperformed total industry volume and its recurring mortgage revenue still increased 6% from last year, highlighting that there is still secular strength to the company’s competitive position.