Partnership With BlackRock’s Aladdin And Tech Investments Will Drive Future Success

Key Takeaways

• Expanding global footprint in developed and emerging markets aims to drive revenue growth through diversified products and new client bases.
  
• Investments in technology and strategic acquisitions enhance market offerings and operational efficiency, supporting revenue and earnings growth.
  
• Exposure to foreign exchange risk, reliance on market volatility, and competition pose challenges, while emerging market expansion offers uncertain growth against rising expenses and potential regulatory hurdles.

Catalysts

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

• Tradeweb Markets has been expanding its global footprint in developed and emerging markets, which is likely to drive future revenue growth as it taps into new client bases and offers more diversified products globally, including in Asia Pacific and the rapidly growing EM (Emerging Markets) revenues.
  
• The company’s investments in technology are aimed at electronifying more market processes and increasing efficiency, which can improve operational capabilities and margins. Tradeweb's focus on automation, such as in its successful AiEX protocol for U.S. Treasuries, is enhancing revenue opportunities via greater volume and efficiency.
  
• Strategic acquisitions like Yieldbroker, r8fin, and ICD are expected to deepen Tradeweb's market offerings and lead to cross-selling opportunities. These acquisitions are anticipated to drive revenue and earnings growth, particularly through broadened capabilities in areas like credit markets and corporate treasury services.
  
• Tradeweb is focusing on building and enhancing client relationships and innovation, such as through its partnership with BlackRock’s Aladdin and integration of new products like RFQ Edge. This focus is projected to support sustained revenue and earnings growth by catering to evolving client demands and improving the trading experience.
  
• Continued expansion in electronic credit trading, alongside gaining market share in newer protocols like streaming and session trading, positions Tradeweb to capture more trading volume and improve revenue as the shift toward electronic trading accelerates, especially in the high-yield and investment-grade sectors.

Tradeweb Markets Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tradeweb Markets's revenue will grow by 14.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 29.1% today to 34.5% in 3 years time.
• Analysts expect earnings to reach $879.0 million (and earnings per share of $3.39) by about March 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 48.0x on those 2028 earnings, down from 56.7x today. This future PE is greater than the current PE for the US Capital Markets industry at 21.0x.
• 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 7.11%, as per the Simply Wall St company report.

Tradeweb Markets Future Earnings Per Share Growth

Risks

• The company has a significant portion of its revenue coming from international markets, with approximately 30% denominated in currencies other than the U.S. dollar, which exposes it to foreign exchange risk that could impact net margins and earnings.
  
• Tradeweb's strategic focus on expanding into emerging markets, while offering growth opportunities, carries risks including regulatory challenges and geopolitical instabilities, which could affect future revenue and profitability.
  
• Increasing competition from other electronic trading platforms and technological advancements in the trading industry could pressure Tradeweb's market share and revenue growth, especially if competitors innovate more quickly or effectively.
  
• Tradeweb's reliance on continued market volatility and “risk-on” trading environments for driving client activity may lead to uneven revenue growth, particularly if market conditions stabilize or turn adverse, impacting revenue and earnings.
  
• The company’s significant investment in technology and increased expenses related to future growth initiatives, such as expanding office space and developing new client solutions, may compress net margins if the anticipated revenue growth does not materialize as expected.

Valuation

• The analysts have a consensus price target of $145.6 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 $197.0, 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 $2.6 billion, earnings will come to $879.0 million, and it would be trading on a PE ratio of 48.0x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $133.23, the analyst price target of $145.6 is 8.5% 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.