Earnings season is in full swing, and we recently learned that companies have seen their earnings decline. According to data from FactSet, the blended earnings for S&P 500 companies fell 4.9% in the fourth quarter (through Feb. 10). If this holds up, it will mark the first time the index has seen earnings decline year over year since the third quarter of 2020.
Companies have had a lot to deal with, from supply chain issues to geopolitical uncertainty, higher energy costs, rising interest rates, and tight labor markets. Despite these challenges, some companies have displayed resilience and achieved solid earnings growth.
Visa (V 0.71%), Interactive Brokers (IBKR 0.91%), and Tradeweb Markets (TW 0.86%) all reported earnings growth of 14% or more last year. Here's why they can keep going.
Visa's robust network makes it the top payment processor globally
Visa processes payments for people worldwide through its debit cards, credit cards, and other payment methods. With nearly $10.9 trillion in transactions volume, Visa runs the world's largest payments network. Its leading position is unmatched, with the company processing 82% more volume than Mastercard and 755% more than American Express.
Data source: Visa 10-K filing. Chart by author.
Visa's strength comes from years of building up its payments systems, giving it a powerful network effect that reinforces its leading position. Because a vast number of payments go through Visa's network, the company has put up stellar earnings despite inflation. Over the last four quarters, Visa's earnings per share has grown 24% thanks to robust consumer spending in categories such as travel and entertainment.
Long-term trends point to further growth for Visa. According to a report published by Allied Market Research, global credit card payments revenue is forecast to reach $263 billion by 2028, representing an annual growth rate of 8.5%.
Additionally, Visa's wide profit margins and strong cash flows ensure the payments giant can continue to reinvest in the business and maintain its position as the top payments network in the world. Visa is a stellar company with a history of growth -- and it doesn't look like it's stopping anytime soon.
Interactive Brokers' tech-focused business produces wide margins and strong growth
Interactive Brokers provides investors with brokerage services, similar to companies like Robinhood or Fidelity. However, what sets Interactive Brokers apart is that it caters to tech-savvy investors.
The company continuously automates its platform and various processes, which have kept fees low to attract clients. This automation improves the customer experience and also gives the company wide profit margins.
Interactive Brokers is so committed to automating its business that its senior managers are mostly software engineers. Last year its pretax profit margin was up to 71%, showing how it is incredibly efficient at turning revenue into profits. Its margins are consistently the widest in the financial sector due primarily to its highly automated processes.
Image source: Interactive Brokers.
Over the past five years, Interactive Brokers' customer count has grown by 34% annually, and last year it was up 25%. Diluted earnings per share grew 15.7% from the year before, as the company benefited from higher interest rates, allowing it to collect more interest income on its margin loans to customers.
Interactive Brokers is on solid financial footing, with more than $100 billion in liquid assets and no debt. So while many tech companies are laying off employees, Interactive Brokers is adding employees to further develop and improve its platform as it angles to expand market share.
Tradeweb Markets keeps gaining business from Wall Street's biggest investors
Tradeweb pulled trading into the digital age when it brought U.S. Treasury trading online with its platform back in 1996. Since then, many of Wall Street's biggest players have turned to Tradeweb's platform to help them trade a range of financial instruments, including:
- Interest rate products such as U.S. Treasuries, European government bonds, and derivative products related to interest rates.
- Credit products like U.S. high-grade and high-yield debt, municipal bonds, and emerging market bonds.
- Equities like U.S. exchange-traded funds, preferred stock, and convertible bonds.
- Money market products like U.S. repurchase agreements, commercial paper, and certificates of deposit (CDs).
What makes Tradeweb stand out is a commitment to its customer experience. The company has expanded through acquisitions and investing in technology to make the trade experience the best possible for customers, protecting their data while lowering the cost of trading.
The results speak for themselves. Since 2016, Tradeweb's revenue has grown 14.8% compounded annually thanks to its wide-ranging product offerings. Its average daily volume has grown across its four product classes at a rate two times that of the total market, showing it's taking market share along the way. Not only that, but with a 14% share of its total addressable market, Tradeweb has a lot of room for potential growth.
Image source: Tradeweb Markets.
Tradeweb recently completed its 23rd consecutive year of revenue growth. Its diluted EPS was up more than 35% from last year, with record activity in high-yield debt, emerging markets, and other U.S. credit products.
Its future is bright, especially when you consider Tradeweb recently partnered with BlackRock's Aladdin technology, bringing its credit trading solutions into Aladdin's execution management system. This multi-year partnership will give investors better analytical tools, while network effects should help Tradeweb keep increasing its market share and earnings.
