Emerging Markets And Electronic Trading Will Drive Future Success

Key Takeaways

• Expansion into new markets and digital asset classes is broadening MarketAxess's reach and potential for sustained revenue and earnings growth.
  
• Strategic technology investments and regulatory trends are driving increased electronic trading, boosting operating leverage and supporting higher long-term margins.
  
• Intensifying competition, client preferences for non-electronic trading, and a shift to lower-margin protocols threaten MarketAxess' revenue growth, margins, and long-term market differentiation.

Catalysts

Operates an electronic trading platform for institutional investor and broker-dealer firms in the United States, the United Kingdom, and internationally.

• The company is rapidly expanding into new geographies and asset classes, particularly through its growth in emerging markets (EM) and Eurobonds, which saw more than 20% volume growth and double-digit commission revenue increases, suggesting the addressable market is broadening and could support higher long-term revenue and earnings.
  
• Persistent migration from manual and phone-based trading to electronic execution, especially targeting large block trades-which are still primarily handled offline-positions MarketAxess to capture significant incremental volume as these trades move onto its platform, driving both top-line growth and operating leverage as fixed-cost technology infrastructure is increasingly utilized.
  
• The company's accelerated investments in automation, portfolio trading, and proprietary trading protocols (such as Open Trading and Mid-X) are resulting in demonstrable gains across multiple strategic channels (client-initiated, portfolio trading, dealer-initiated), creating new, higher-margin revenue streams likely to enhance net margins over time.
  
• Regulatory and industry pressures for increased transparency and efficiency in over-the-counter fixed income markets continue to drive flow toward compliant electronic venues; this structural tailwind should increasingly favor MarketAxess and support sustainable increases in trading volumes and revenues.
  
• Ongoing international client adoption, alongside new strategic product rollouts (e.g., first electronic Indian Government Bond trade, portfolio trading for munis, enhanced pre-trade analytics), is creating momentum for continued market share gains, supporting long-term revenue growth and margin expansion as the global fixed income market continues to digitize.

MarketAxess Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MarketAxess Holdings's revenue will grow by 7.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.6% today to 35.2% in 3 years time.
• Analysts expect earnings to reach $370.5 million (and earnings per share of $10.02) by about September 2028, up from $222.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $327.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.8x on those 2028 earnings, down from 31.6x today. This future PE is greater than the current PE for the US Capital Markets industry at 26.7x.
• Analysts expect the number of shares outstanding to decline by 0.9% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.05%, as per the Simply Wall St company report.

MarketAxess Holdings Future Earnings Per Share Growth

Risks

• Persistent reliance on the US high-grade corporate bond segment exposes MarketAxess to concentration risk; any prolonged trend of large block trades transacting via phone or chat-rather than electronically-may erode their core market share, putting sustained pressure on revenue and net earnings.
  
• Heightened competition, especially from entrenched rivals like Bloomberg and Tradeweb as well as new fintech entrants, increases the risk of fee compression and lost market share, evidenced by both a year-over-year decline in fee per million and reported market share losses in U.S. high-grade blocks, potentially impacting revenue growth and net margins.
  
• Expanding protocol and product mix, while supporting trading volume, has driven lower average fee capture; as more business shifts to lower-margin protocols like portfolio trading, this structural shift could constrain long-term revenue growth and margin expansion, despite headline ADV increases.
  
• The increasing ease of electronification and the rise of new trading methods (such as phone/chat for block trades and all-to-all protocols) may commoditize electronic bond trading, reducing MarketAxess' ability to differentiate and price at a premium, adversely affecting both revenue per transaction and earnings over time.
  
• Slower-than-expected adoption of new electronic block-trading solutions in the US, or persistent structural client preference for non-electronic channels for large trades, may limit the company's addressable market expansion and stall momentum from strategic hires, resulting in muted revenue uplift and operational leverage.

Valuation

• The analysts have a consensus price target of $218.833 for MarketAxess Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $274.0, and the most bearish reporting a price target of just $168.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $370.5 million, and it would be trading on a PE ratio of 26.8x, assuming you use a discount rate of 8.0%.
• Given the current share price of $188.17, the analyst price target of $218.83 is 14.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.