Please ensure Javascript is enabled for purposes of website accessibility

Why Intercontinental Exchange Fell 10.5% in February

By James Brumley - Mar 3, 2020 at 3:37PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Neither whispers it was acquiring eBay, nor confirmation that it wasn't going to buy it, worked in the stock's favor.

What happened

Shares of Intercontinental Exchange (ICE 0.55%) certainly began the month on a high note, riding a bullish wave that got rolling in November. But, when all was said and done, the stock ended February down 10.5%, according to data provided by S&P Global Market Intelligence.

Most of that loss was suffered in the span of just three days early in the month. The company surprised some investors when it confirmed on Feb. 4 that it was entertaining the idea of acquiring online auction platform eBay (EBAY 0.14%), sending shares sharply lower. It surprised and disappointed other investors when it said two days later it wasn't moving ahead with the prospect after all, pushing shares lower once again.

A hand drawing a falling chart on a chalkboard

Image source: Getty Images.

So what

Intercontinental Exchange -- the parent company to several capital markets exchanges, including the New York Stock Exchange -- has a history of success using acquisitions as growth drivers. As the number of compelling buyout targets shrinks, though, Intercontinental Exchange increasingly finds growth to be a challenge. At the same time, regulatory limits on price increases and the number of data-based products the company can sell have made growth even tougher to muster.

The addition of eBay, while seemingly unusual, would have sidestepped the regulatory-related pricing challenges, since eBay is a consumer-oriented company and not subject to the limiting scrutiny of the Securities and Exchange Commission. The two organizations could also have been able to share technologies that connect buyers to sellers in a variety of ways. The pairing even had the potential to serve as a fundraising platform of sorts for smaller companies that weren't quite ready for a full-blown exchange listing. But it wasn't meant to be. CEO Jeff Sprecher explained during the quarterly conference call on Feb. 6 that Intercontinental Exchange wouldn't pursue a deal with eBay.

The short-lived saga is noteworthy simply because both the possibility of the deal, and the negation of that possibility, pushed shares downward.

Now what

Intercontinental Exchange shares snapped back later in the month, only to roll over again during the latter half of February as coronavirus fears swelled. The share price is on the fence now, positioned to move higher or lower if traders can figure out how they feel.

Regardless, the underpinnings of the eBay debacle still stand. If Intercontinental Exchange wants to grow and can't do so through increased trading revenue alone, it needs to find good acquisition targets and get deals done. Should the coronavirus contagion turn into a global epidemic, such plans would likely be postponed -- not that the company had any other major deals on the horizon.

James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Intercontinental Exchange. The Motley Fool recommends eBay and recommends the following options: long January 2021 $18 calls on eBay and short January 2021 $37 calls on eBay. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Intercontinental Exchange, Inc. Stock Quote
Intercontinental Exchange, Inc.
ICE
$106.63 (0.55%) $0.58
eBay Inc. Stock Quote
eBay Inc.
EBAY
$48.57 (0.14%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
390%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.