MarketAxess Earnings: Volatile Fixed-Income Markets Drive Record Results and Market Share Gains

Wide-moat-rated MarketAxess MKTX reported results that were largely in line with our expectations as strong fixed-income trading volume was offset by weaker average pricing. Revenue increased 9% year over year, or 11% on a constant currency basis, and 14.2% sequentially to $203 million, while earnings per share increased 15% to $1.96. As we incorporate these results, we do not plan to materially alter our $360 fair value estimate for MarketAxess and see the shares as modestly undervalued.

MarketAxess’ trading revenue benefited from the volatility and difficult trading environment created during the collapse of Silicon Valley Bank. MarketAxess’ Open Trading platform, which allows institutions to trade bonds directly without the need for an intermediary dealer, typically sees increased use during periods of constrained liquidity. This is particularly true in high-yield U.S. corporate bonds or other illiquid trading products, as it offers traders a broader network to source liquidity from. As a result, total credit trading volume was up 14.6% year over year to $854 billion, with U.S. high-yield and eurobond trading volume up 21.9% and 23.8%, respectively. While trading volume was high industrywide, MarketAxess’ results were supported by rising market share, with the firm’s share of the U.S. high-yield market rising to 18.3% from 15.2% last year.

But positive results in terms of trading volume were offset by lower average credit transaction fees per million, which fell to $165 from $172.5 per million last year, a consistent theme for several quarters now. MarketAxess’ investment-grade trading fees are based in part on bond duration, and rising interest rates have led to a lower average duration of U.S. investment-grade bonds traded on both the MarketAxess platform and industrywide, creating a headwind to results. While average pricing has likely stabilized on a sequential basis, we expect this lower level to remain the ongoing run rate in the near- to medium-term future.