Tradeweb Markets Earnings: Strong Interest-Rate Swap Volume Drives Higher Revenue and Earnings

Wide-moat Tradeweb Markets TW reported decent first-quarter results that were roughly in line with our expectations. Strong interest-rate swaps were a significant bright spot for the firm as interest-rate volatility and issues in the banking sector drove high trading volume, which more than offset less inspiring results from some of the firm’s other key trading products.

Revenue increased 5.7% year over year to $392 million, while net income increased 4.9% to $102.2 million. The first quarter of 2022 was unusually strong for Tradeweb, making for a difficult comparison. On a sequential basis, net revenue and net income rose 12.3% and 3.2%, respectively. As we incorporate these results, we do not plan to materially alter our $84 fair value estimate. We see the shares as modestly undervalued.

Tradeweb’s rate-based trading products led the way in the first quarter, with revenue rising 6.3% year over year and 17.3% sequentially to $170.5 million, thanks to higher trading volume and share gains. Average daily volume for long-tenor interest swaps was 35.8% higher than last year, with Tradeweb benefiting from both high volume and higher market share (which increased to 16.3% of global swap volume from 12.7% last year). Industry-level interest-rate swap volume is often quite volatile, limiting how much of this growth can be projected in future quarters, but we view Tradeweb’s share gains as a key sign of strength.

On a less positive note, the firm saw more modest results in its other major rate-based trading categories. U.S. Treasury average daily volume fell 3.7% from last year as Tradeweb’s market share remained somewhat stagnant at 19.3% (compared with 19.6% last year). Mortgage-backed security average daily volume fell 12.2% as the category remains pressured by low issuance levels due to a weak mortgage market. While Tradeweb remains the market leader in mortgage bonds, this segment will likely face headwinds until lower rates revive refinancing activity.