Saudi Arabia Expansion And AIEX Will Position Future Connectivity

Key Takeaways

• Tradeweb's strategic expansion and automation are set to boost revenue growth, operational efficiency, and market connectivity in emerging markets and institutional U.S. treasuries.
  
• Investment in technology and pricing model shifts aim to stabilize revenue, enhance earnings predictability, and drive growth in digital assets and market electronification.
  
• Macroeconomic and geopolitical risks, pricing changes, retail sentiment, and foreign exchange exposure could significantly impact Tradeweb's revenue growth and net margins.

Catalysts

Tradeweb Markets Inc., together with its subsidiaries, builds and operates electronic marketplaces worldwide.

• Tradeweb's expansion into emerging markets credit, including plans to launch in Saudi Arabia, is expected to drive revenue growth as they onboard both global and local dealers to expand market connectivity.
  
• The company's focus on automation, particularly with their AiEX solution for institutional U.S. treasuries, is likely to improve trade volumes and operational efficiency, contributing to higher net margins.
  
• The strategic shift towards a mixed variable and fixed pricing model for their credit business, along with introducing subscription fees, is anticipated to stabilize revenue and enhance earnings predictability.
  
• Tradeweb's investment in emerging technology and digital assets is expected to position them well for future growth in collateral management and efficiency improvements, potentially increasing revenue and margins.
  
• Continuing innovation in electronic trading solutions and expanding their market presence, such as portfolio trading in European government bonds, is projected to bolster revenue growth by increasing electronification of markets.

Tradeweb Markets Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tradeweb Markets's revenue will grow by 13.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 29.1% today to 35.6% in 3 years time.
• Analysts expect earnings to reach $892.0 million (and earnings per share of $3.48) by about April 2028, up from $501.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 48.6x on those 2028 earnings, down from 58.5x today. This future PE is greater than the current PE for the US Capital Markets industry at 24.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.1%, as per the Simply Wall St company report.

Tradeweb Markets Future Earnings Per Share Growth

Risks

• The evolving macroeconomic environment and geopolitical risks mentioned in the call may lead to significant volatility in financial markets, impacting Tradeweb's ability to maintain consistent revenue growth.
  
• The transition from variable to fixed pricing in the credit business, while aimed at increasing recurring revenue, could limit upside potential from volume-driven revenue increases, potentially affecting net margins.
  
• Rising macroeconomic uncertainty and its effect on retail investor sentiment, particularly in the credit market, could lead to a decline in retail credit revenues, impacting overall revenue growth.
  
• Adjustments in fee structures and the impact of elevated volatility could result in decreased average fees per million in certain markets, which may compress net margins.
  
• International revenue exposure, which constitutes approximately 40% of total revenue, may introduce foreign exchange risks and impact overall earnings due to fluctuations in currencies against the U.S. dollar.

Valuation

• The analysts have a consensus price target of $149.533 for Tradeweb Markets based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $208.0, and the most bearish reporting a price target of just $107.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $892.0 million, and it would be trading on a PE ratio of 48.6x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $137.38, the analyst price target of $149.53 is 8.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.