Expanding Digital Assets And Energy Will Transform Global Trading Landscape

Key Takeaways

• Expansion into diverse asset classes and agency services is driving recurring revenue growth and broader market exposure.
  
• Investments in technology and disciplined capital allocation are increasing trading efficiencies, margins, and shareholder returns.
  
• Competitive pressures, regulatory changes, technology disruption, and rising investment costs threaten Virtu's margins and long-term earnings growth in core trading activities.

Catalysts

Operates as a financial services company in the United States, Ireland, and internationally.

• Virtu's ongoing expansion into new asset classes, such as digital assets, fixed income, energy products, and global listed options, is well-aligned with the broader growth and electronification of trading across markets, which is likely to drive increases in revenue and diversify earnings streams.
  
• Continued investments in proprietary trading technology and the integration of trading groups are resulting in improved trading efficiencies, internalization rates, and cost discipline, leading to enhanced net margins even in periods of volatile market conditions.
  
• The growth of Virtu Execution Services (VES)-with management expressing confidence in reaching a $2 million per day run rate-reflects rising market demand for transparency, best execution, and multi-asset agency services, providing new recurring revenue sources and further expanding net margins over time.
  
• The sustained uptrend in retail investor engagement and higher baseline volumes, supported by robust account openings at retail brokers, positions Virtu to benefit from the structural growth in global trading volumes, directly supporting long-term revenue growth.
  
• Ongoing share repurchases and a disciplined capital allocation strategy amplify the impact of topline growth and margin expansion by driving double-digit reductions in share count, which should result in significant EPS and ROE growth over the next several years.

Virtu Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Virtu Financial's revenue will decrease by 13.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.5% today to 35.9% in 3 years time.
• Analysts expect earnings to reach $568.0 million (and earnings per share of $3.52) by about July 2028, up from $301.0 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 15.5x on those 2028 earnings, up from 12.6x today. This future PE is lower than the current PE for the US Capital Markets industry at 27.7x.
• Analysts expect the number of shares outstanding to decline by 1.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.92%, as per the Simply Wall St company report.

Virtu Financial Future Earnings Per Share Growth

Risks

• Sustained compression of trading spreads and fees due to increased competition (including Citadel and Jane Street entering Virtu's outsourced trading service markets), electronification, and low-volatility market environments could reduce Virtu's net trading income and put downward pressure on profit margins.
  
• Heightened regulatory scrutiny or changes-such as potential financial transaction taxes or stricter rules on market structure, digital assets, or best execution-could raise compliance costs, restrict certain trading activities, and directly impact both revenue and earnings.
  
• The growth and adoption of blockchain and decentralized finance technology could eventually bypass the need for traditional market makers like Virtu in some asset classes, eroding their core transaction-based revenue streams and potentially reducing long-term revenue.
  
• Continued investment required to maintain cutting-edge technology, connectivity, and low-latency infrastructure-especially as more rivals invest heavily as well-may drive up ongoing expenses and compress overall net margins.
  
• Increased commoditization of high-frequency/algorithmic trading strategies, as technological advantages level out and more competitors adopt similar systems, could lead to margin compression and make it harder for Virtu to maintain earnings growth.

Valuation

• The analysts have a consensus price target of $45.0 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 $52.0, and the most bearish reporting a price target of just $35.0.
  
• 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 $568.0 million, and it would be trading on a PE ratio of 15.5x, assuming you use a discount rate of 9.9%.
  
• Given the current share price of $44.17, the analyst price target of $45.0 is 1.8% 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.