Amid global tensions, tight supplies, and a rising U.S. dollar, oil futures hit a record $93 per barrel today. While this is certainly a problem for companies and consumers, it's a growth driver for InterContinental Exchange (NYSE: ICE), which operates an electronic marketplace for energy and commodities. It's no wonder the exchange posted strong Q3 numbers last week.
ICE posted a 60.3% increase in revenues to $151.7 million, and net income was up 53% to $66.7 million. There was a big boost from futures trading in Europe, as well as the global over-the-counter (OTC) marketplace, which is popular for hedge funds and other sophisticated investors.
To remain competitive against rivals like NYMEX Holdings (NYSE: NMX) and CME Group (NYSE: CME), ICE has been investing aggressively in new products and infrastructure. For example, there is a new offering for trading the Russell indexes, and ICE is also adding clearing operations in Europe. Clearing means facilitating the settlement of trades, such as the delivery of certificates and the transfer of payments.
ICE has also been spinning some acquisitions. For example, the company purchased ChemConnect's commodity-trading business, which has an assortment of OTC products for natural gas liquids and chemicals. The company also agreed to purchase Winnipeg Commodity Exchange, which focuses on futures and options in Canada.
However, these investments will likely put pressure on margins. In fact, over the past year, operating margin dipped from 69.1% to 66.5%, and capital expenditures went from $8.4 million to $25.8 million (for the first nine months of this year).
However, investors don't seem to mind, given the massive consolidation in the exchange sector. These transactions include the NYSE Euronext (NYSE: NYX) megamerger, as well as the $9 billion combination of the CME and CBOT. Perhaps the most interesting deal is Dubai Ports World's purchase of a 19.9% stake in Nasdaq (Nasdaq: NDAQ) and a 28% holding in the London Stock Exchange.
In the meantime, ICE continues to build a strong franchise, with an extensive trading platform that can execute trades in as little as seven milliseconds per roundtrip. And with its new product offerings and the continued surge in global trading volume, it looks like the heady growth should continue for some time.
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