August 8, 2019 / 1:41 PM / 14 days ago

Tradeweb earnings beat as volume surges; one-time expenses hit profit

NEW YORK (Reuters) - Tradeweb Markets (TW.O) on Thursday reported second-quarter earnings that beat market expectations and in-line revenue after adjustments for one-time expenses related to the electronic trading platform’s 2019 IPO.

Revenue rose 11.4% from the same period a year ago to a quarterly record of $190.5 million as trading volumes also hit a quarterly high. Volume across asset classes was up 39.6%, with notable increases in U.S. investment-grade credit and interest-rate derivatives, a business that grew 80% year-over-year, Chief Executive Lee Olesky said.

The New York-based company reported earnings of $0.25 per share with one-time costs stripped out, versus the expected $0.23. Non-adjusted earnings were $0.09 per share.

Top-line growth has surged as fixed-income trading has begun to move online, a transition equities traders made in the 1990s. Capitalizing in part on this shift, Tradeweb went public in April of this year and its share price has since risen 31.23%.

On Thursday, however, Tradeweb’s shares were last trading 2.88% lower at $44.54 on Nasdaq.

“The market’s appetite for electronic trading and the data to drive it continues to grow. Despite all of the progress over the past few years, it seems we’re just getting started. The P/E ratios of MarketAxess and Tradeweb both tell quite a story,” said Kevin McPartland, managing director, market structure and technology, at Greenwich Associates.

MarketAxess Holdings (MKTX.O) is a rival electronic bond-trading platform. Earlier this month it reported a surge in revenue, though, like Tradeweb, its expenses increased as its business grew.

Tradeweb’s price-to-earnings ratio is 65.2; MarketAxess’ is 71.53, suggesting investors are betting on significant future growth. The ratio is much lower for peers in equities trading: Nasdaq (NDAQ.O) trades at 19.38 times earnings, and Intercontinental Exchange (ICE.N) trades at 25.77 times.

In spite of Tradeweb’s rise in revenue, net income fell to $24.8 million for the quarter from $38.9 million a year ago, hit by a special stock-based compensation award of $20.4 million to Tradeweb management and employees following its initial public offering.

The company also recorded a notable increase in depreciation and amortization costs due to the spin-off of Refinitiv [RFT.UL], its former majority-owner, from Thomson Reuters (TRI.N) to Blackstone (BX.N).

Refinitiv and the London Stock Exchange (LSE.L) in July announced they would merge in a $27 billion deal. Olesky declined to comment on the specific opportunities for growth that might be available to Tradeweb if that deal is approved.

Thomson Reuters is the parent company of Reuters News and a stakeholder in Refinitiv.

Reporting by Kate Duguid; editing by Jonathan Oatis and Dan Grebler

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