VALUATION HIGHLIGHTS
- Data Services & Others constitute 69% of the Trefis price estimate for IntercontinentalExchange's stock.
- Derivatives Trading constitutes 28% of the Trefis price estimate for IntercontinentalExchange's stock.
WHAT HAS CHANGED?
Latest earnings
In Q4 2024, ICE reported Total Revenues of $2.32 billion, which was 5.5% more than the year-ago period. The company saw robust results for its exchanges division, with the energy segment seeing particularly strong growth. Adjusted earnings stood at $1.49 per share.
Intercontinental Exchange (ICE) owns exchanges for financial and commodity markets. It derives a bulk of revenues from transaction and clearing services, which include derivatives, fixed income, cash equities, and equity options trading and derivatives clearing. The exchange has witnessed high trading activity since the pandemic. This, in turn, means that the exchange would generate more revenue in terms of transaction and clearing fees. Further, the company is focused on growing its mortgage technology offerings, which saw strong growth over the recent quarters.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are some key drivers of ICE's value that present opportunities for upside or downside to the current Trefis price estimate:
- ICE's Data Services Expanding Well: The demand for data-driven insights and analytics-driven recommendations has increased substantially in the last couple of years. The company's acquisitions in this regard have been able to expand the markets served by the company, add technology platforms, and increase risk management, new data, and valuation services. In 2021, the segment generated $2.5 billion in revenue, which increased to $2.7 billion in 2023, although it fell slightly in 2024. We expect them to continue increasing over the next few years to nearly $4.6 billion by the end of our forecast period. However, if the increased growth rate due to increasing demand and adoptions leads to revenues of around $5 billion, we could see a 5% upside to our price estimate.
BUSINESS SUMMARY
Founded in May 2000, Intercontinental Exchange (ICE) has grown into one of the largest exchange operators and clearinghouses globally.
ICE has expanded through major acquisitions, including NYSE Euronext in 2013, later spinning off Euronext in 2014 while keeping NYSE. It strengthened its financial data services with IDC in 2015. ICE further grew its data and fixed-income business with BondPoint, Chicago Stock Exchange, and TMC in 2018 and expanded into mortgage technology by acquiring Ellie Mae (2020) to bolster its digital lending and housing market data services.
Today, ICE operates across trading, clearing, data services, and mortgage technology.
SOURCES OF VALUE
Data Services
Over half of the value in ICE's stock currently comes from its market data and technology business. This division sells market data to market participants, along with other services such as terminal access, direct access services, daily indexes, and end-of-day reports. Revenue from this division has grown recently due to an increase in the number of users and an increase in pricing, along with acquisitions undertaken (Interactive Data & Trayport).
Derivatives
The derivatives business is the largest and fastest-growing division within the firm. It is also one of the most profitable segments, having EBITDA margins of around 73% according to our estimates. The division is likely to continue growing over the next few years as regulations around the world force over-the-counter (OTC) derivatives onto centralized clearing platforms similar to those operated by ICE.
Equity Trading and Listings
The acquisition of NYSE also provided ICE the ownership of cash equities, equity options, and listings franchises in the U.S. Collectively, these businesses account for just under 6% of the value of the company.
KEY TRENDS
Increasing demand for data services and products
Amid geopolitical turmoil and distressed market conditions, investors continue to seek data-driven advice and advanced technological products for improved earning opportunities. With an increased demand for data services and competitors like NASDAQ also cashing in on this demand, ICE's services catering to both equities and derivatives will put it in a leading position in the future.
Intense competition among exchanges
Given the huge opportunity in Europe, almost all the major U.S. exchanges are trying to boost their presence across the Atlantic. NASDAQ has already launched a futures exchange in London, while CME is in the process of doing so. Both exchanges are likely to compete aggressively with ICE in the future to gain market share. The intense competition could also lead to price wars among these players and negatively impact profit margins.
