What happened
Shares of Tradeweb Market (TW 1.49%) rose 26.5% in May, according to data from S&P Global Market Intelligence. The electronic trading platform reported earnings during the month, highlighting a quarter which saw an enormous spike in trading activity on its platform, leading to better-than-expected results.
So what
During the quarter, Tradeweb saw a 25.6% increase in gross revenue on a 39% increase in average daily volumes executed through its platform. Transaction revenues, which make up a majority of overall revenue, increased about 37.2%. The overall revenue growth marked an acceleration over just 13% revenue growth in all of 2019.
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Tradeweb's margins also expanded, showing the operating leverage in the business, with adjusted EBITDA margins growing from 37.5% to 46.4%, and adjusted (non-GAAP) EPS surging 60.9%, from $0.23 to $0.37. Both revenue and adjusted profits came in well ahead of analyst expectations.
CEO Lee Olesky said:
We see the long-term trend toward more electronic markets accelerating, which is reflected in both client behavior and record trading volumes. Our clients are interacting with Tradeweb in new ways, expanding their use of tools like portfolio trading and net-spotting, and demonstrating greater confidence in electronic trading and digital workflows. For many, and we hear this all the time, there's simply no going back to the old way of doing things.
Now what
Investors shouldn't expect the acceleration of trading activity to continue, since the first quarter set volatility records, with the quickest-ever 30% decline in the stock market and unprecedented dislocations in more illiquid markets where Tradeweb excels.
Nevertheless, the COVID-19 crash could mark a favorable turning point for Tradeweb. More and more of the old-school, manual, and relationship-based trading in Treasuries, municipal bonds, corporate debt, derivatives, and other illiquid instruments have been gravitating toward electronic trading solutions like TradeWeb's over the years. The COVID-19 crisis should give those existing trends a jump-start, giving Tradeweb a nice tailwind over the long-term as next-generation trading solutions take over from older ways of doing things.
