Expanding Into Crypto And Global Markets Will Drive Future Success

Key Takeaways

• Strategic expansion into new asset classes and markets is boosting operating leverage and profitability, enhancing net margins and future revenue potential.
  
• Organic growth in the crypto segment and regulatory changes are expanding revenue opportunities and driving long-term earnings growth.
  
• Expanding into crypto and digital assets offers growth prospects but faces regulatory challenges, competition, and potential revenue fluctuation due to volatile market conditions.

Catalysts

Operates as a financial services company in the United States, Asia Pacific, Canada, EMEA, Ireland, and internationally.

• Virtu's Execution Services business achieved its best quarter since Q1 2022, benefiting from increased client adoption and integration into trading workflows, which is expected to drive revenue growth.
  
• Ongoing technology enhancements and expansion into additional asset classes such as crypto, ETF block, options, and fixed income are anticipated to increase operating leverage and boost profitability, impacting net margins.
  
• The company is experiencing organic growth, particularly in its crypto segment, where investments in market access and liquidity distribution are driving strong results, which could contribute to future revenue increases.
  
• The strategic expansion of the Virtu Execution Services business, including successful deployment of products in Europe and Asia, is set to offer additional revenue streams and improve earnings through greater client activity.
  
• The anticipated regulatory changes, notably around digital assets, suggest expanding addressable markets and the introduction of new products, which are expected to enhance revenue opportunities and drive long-term earnings growth.

Virtu Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Virtu Financial's revenue will decrease by -6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.2% today to 36.7% in 3 years time.
• Analysts expect earnings to reach $570.1 million (and earnings per share of $3.43) by about January 2028, up from $176.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.4x on those 2028 earnings, down from 19.0x today. This future PE is lower than the current PE for the US Capital Markets industry at 23.1x.
• Analysts expect the number of shares outstanding to grow by 2.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.83%, as per the Simply Wall St company report.

Virtu Financial Future Earnings Per Share Growth

Risks

• The company's increasing focus on expanding its crypto and digital assets segment, while a growth opportunity, may face significant regulatory challenges and increased competition, which could impact future revenues and margins.
  
• Despite stability in earnings, the company's reliance on volatile market conditions and factors such as volumes and volatility could result in fluctuations in revenue and profitability if market conditions change.
  
• Market share pressures from established competitors and new entrants in the cash equities space may impact Virtu's ability to maintain or grow its revenue in this key segment.
  
• Rising expenses associated with expansion efforts in sectors such as crypto, fixed income, and global market operations could pressure net margins if revenue growth does not align with these cost increases.
  
• Regulatory changes and clarity, while beneficial for certain segments like crypto, may still pose risks or lead to unexpected compliance costs, impacting earnings if the company must adjust operations to meet new regulations.

Valuation

• The analysts have a consensus price target of $38.44 for Virtu Financial 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 $51.0, and the most bearish reporting a price target of just $31.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $570.1 million, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $38.93, the analyst's price target of $38.44 is 1.3% lower. 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.