It's been a steady climb higher for MarketAxess Holdings (MKTX -0.27%) over the past year, with shares of the leading electronic bond-trading platform rising nearly 40% in value.
But will MarketAxess continue to trend higher when the company reports its earnings on Jan. 27? Here are some key items to look for in MarketAxess' fourth-quarter results that will likely help to determine the answer to that question.
Share gains
MarketAxess has been enjoying solid increases in market share across all of its core products. Particularly noteworthy was the company's increased share in U.S. high-grade corporate debt to an estimated 17.3% in the third quarter, up from 14.6% in the year-ago quarter, which continued a trend of impressive share gains since the first quarter of 2014.
Image source: MarketAxess Q3 2015 earnings presentation (link opens PDF).
In the fourth quarter, investors will be looking for more market-share gains in U.S. high-grade and high-yield bonds, as well as continued growth in MarketAxess' European and emerging market fixed-income operations.
Margin improvement
As a primarily fixed-cost business, MarketAxess has significant operating leverage inherent in its business model. This was once again evident in the third quarter, when total expenses increased only 8% year over year to $38.8 million while revenue jumped 15.5% to $74.2 million. That helped pre-tax margin improve to 47.7% from 44% in the third quarter of 2014.
For Q4, investors will want to see MarketAxess continue to control costs as revenue rises, thereby helping the company's pre-tax profit margins climb further toward the 50% range.
Capital returns
MarketAxess has a pristine balance sheet, with the company reporting more than $255 million in cash and investments against zero long-term debt at the end of the third quarter. That financial strength -- along with MarketAxess' strong cash-flow generation -- has allowed management to return cash to shareholders in the form of share buybacks and steadily rising dividends.
On Jan. 27, MarketAxess is likely to announce its sixth consecutive annual dividend increase. On the day of last year's fourth-quarter earnings release, the company boosted its quarterly dividend 25% to $0.20 per share. Another increase of that size would likely be well received by investors.
How to access MarketAxess' results
MarketAxess will announce its fourth-quarter financial results on Wednesday, Jan. 27, 2016, before the financial markets open. Investors can tune in to its live conference call, where management will discuss the quarter's results at 10:00 a.m. ET. Both the release and a link to the conference call will be available at the company's investor relations website.
