Cboe Global Markets Inc (CBOE) is the world's leading derivatives and securities exchange network, providing cutting-edge trading, clearing, and investment solutions to people around the globe. The company's diverse portfolio of products and services caters to a wide range of market participants, from individual investors to institutional players, empowering them to navigate the ever-evolving financial landscape.
Business Overview
Cboe Global Markets was founded in 1973 as the Chicago Board Options Exchange (CBOE), the first organized options exchange in the United States. Over the decades, the company has evolved and expanded its reach, becoming a multi-asset class exchange operator with a global footprint. In 2017, CBOE acquired Bats Global Markets, significantly expanding its presence in the equities and global markets space.
The company's growth has not been without challenges. In the early 2000s, Cboe had to adapt to new electronic trading platforms and increased competition from other options exchanges. The financial crisis of 2008-2009 also impacted the company, leading to decreased trading volumes. To address these challenges and diversify its product offerings and geographic reach, Cboe has made strategic acquisitions and investments. In 2016, the company acquired Hotspot FX, a leading institutional foreign exchange (FX) trading platform.
As a self-regulatory organization, Cboe's exchanges and subsidiaries are subject to routine reviews and inspections by regulatory bodies such as the SEC and CFTC. The company has had to navigate changes in market structure rules and adapt its operations accordingly. Despite these regulatory challenges, Cboe has remained a leader in the derivatives and securities exchange industry, with its commitment to innovation and technology enabling it to stay ahead of market trends and meet the evolving needs of its customers.
Today, Cboe's subsidiaries include the largest options exchange and the third-largest stock exchange operator in the U.S., as well as leading exchange platforms in Europe, Asia Pacific, and Canada. The company's operations are organized into six reportable business segments: Options, North American Equities, Europe and Asia Pacific, Futures, Global FX, and Digital.
The Options segment includes options on market indices, stocks of individual corporations, and ETPs. These options are traded on Cboe Options, the company's primary options market, as well as on C2, BZX, and EDGX, which are all-electronic options exchanges. This segment also generates revenue from market data fees, index licensing, routing services, and access and capacity services.
The North American Equities segment covers U.S. equities and ETP transaction services on the fully electronic exchanges owned and operated by BZX, BYX, EDGX, and EDGA, as well as equities transactions on the BIDS Trading platform in the U.S. and Canada. It includes listing services on Cboe Canada Inc., corporate and ETP listings on BZX, market data fees revenues, and various other services.
The Europe and Asia Pacific segment encompasses pan-European listed equities and derivatives transaction services, ETPs, exchange-traded commodities, and international depository receipts on MTFs operated by Cboe Europe Equities and Cboe NL. It also includes the ETP listings business on RMs and clearing activities of Cboe Clear Europe, as well as the equities transaction services of Cboe Australia and Cboe Japan.
The Futures segment provides transaction services through CFE, a fully electronic futures exchange, offering VIX futures and other futures products. The company plans to transition its cash-settled Bitcoin and Ether futures contracts from the Cboe Digital Exchange to CFE in the first half of 2025.
The Global FX segment offers institutional FX trading services on the Cboe FX platform, non-deliverable forward FX transactions on Cboe SEF, and transaction services for U.S. government securities on the Cboe Fixed Income platform.
The Digital segment previously included a U.S.-based spot digital asset trading market, which was closed as of May 31, 2024. Going forward, it will include a regulated futures exchange and clearinghouse, as well as revenue from data licensing and access services.
Financial Performance
Cboe Global Markets has consistently delivered strong financial results, showcasing the resilience and adaptability of its business model. In the fiscal year 2024, the company reported record net revenue of $2.1 billion, representing an 8% increase from the previous year. This growth was driven by solid performances across all major business segments, including a 10% increase in organic net revenue from the company's cash and spot markets, a 7% rise in organic net revenue from the Data Vantage business, and an 8% increase in organic net revenue from the Derivatives Markets segment.
The company's profitability has also been impressive, with adjusted diluted earnings per share (EPS) reaching a record $8.61 in 2024, a 10% increase from the prior year. Cboe's adjusted EBITDA margin for the full year 2024 was 65.9%, reflecting the company's ability to maintain disciplined expense management while investing in strategic growth initiatives.
For the nine months ended September 30, 2024, Cboe's total revenues were $2.99 billion, up 6% compared to the same period in 2023. Revenues less cost of revenues increased 9% to $1.55 billion, driven by growth across the Options, North American Equities, Europe and Asia Pacific, and Futures segments. The company's adjusted EBITDA rose 10% to $1.02 billion for this period.
In the most recent quarter, Cboe reported revenue of $524.5 million, a 5% increase year-over-year, and net income of $196.5 million, a 2% increase. The company's operating cash flow for the quarter was -$710.4 million, with free cash flow at -$734.2 million.
Operational Highlights
Cboe's Derivatives Markets segment has been a consistent standout, delivering another record year in 2024. The company's options exchanges traded a total volume of 3.8 billion contracts, with an average daily volume (ADV) of nearly 15 million contracts. This was driven by strong demand for the company's S&P 500 volatility toolkit, including record ADV for SPX options at 3.1 million contracts and record ADV for VIX options at 830,000 contracts.
The company's Data Vantage business also performed exceptionally well, with organic net revenue increasing 7% in 2024. This growth was fueled by the success of new product launches, such as the dedicated cores offering in the U.S., which has been replicated across Cboe's global markets. Additionally, the company's international sales efforts have paid dividends, with 40% of new sales in 2024 coming from outside the U.S.
Cboe's cash and spot markets also delivered robust results, with organic net revenue increasing 10% in 2024. This was driven by market share gains across all regions, including Europe, where Cboe was the largest stock exchange in the fourth quarter, with a market share of 33% in continuous trading.
Strategic Initiatives
Cboe Global Markets has recently unveiled several strategic initiatives to drive long-term growth and enhance its competitive position. One such initiative is the rebranding of the company's exchange technology platform as "Cboe Titanium," signaling an exciting new chapter in Cboe's commitment to delivering best-in-class trading technology for its global market participants.
Additionally, Cboe has been investing in expanding access to its products, particularly in the retail investor segment. The company's successful partnership with Robinhood, one of the largest options trading platforms for retail investors, has been a key focus area, with Cboe's index options now available to all Robinhood customers.
Cboe's international expansion efforts have also been a priority, with the company focusing on building a local sales force and educational resources in its six priority Asia-Pacific markets: Japan, Australia, South Korea, Singapore, Taiwan, and Hong Kong. These initiatives are aimed at driving increased global adoption of Cboe's derivatives products and tapping into the growing demand for risk management tools in international markets.
Risks and Challenges
As with any leading financial services provider, Cboe Global Markets faces a range of risks and challenges that require ongoing attention and management. These include regulatory changes, competitive pressures, technology disruptions, and global macroeconomic and geopolitical uncertainties.
The company's operations are subject to extensive regulation, and any significant changes in the regulatory landscape could impact its business model and financial performance. Additionally, the highly competitive nature of the exchange industry means that Cboe must continuously innovate and adapt to maintain its market-leading position.
Technological advancements, such as the rise of artificial intelligence and increased automation, also present both opportunities and risks for Cboe. The company must ensure that its technology infrastructure remains cutting-edge and resilient to meet the evolving needs of its customers.
Furthermore, global events, such as ongoing trade tensions, changes in monetary and fiscal policies, and the potential for economic downturns, can introduce volatility and uncertainty that may affect Cboe's trading volumes and revenue streams.
Financials
Cboe Global Markets' financial performance has been strong, with record net revenue of $2.1 billion in fiscal year 2024, representing an 8% increase from the previous year. The company's adjusted diluted earnings per share (EPS) reached $8.61 in 2024, a 10% increase from the prior year. The adjusted EBITDA margin for the full year 2024 was 65.9%, demonstrating the company's ability to maintain profitability while investing in growth initiatives.
For the most recent fiscal year, Cboe reported revenue of $2.07 billion and net income of $764.9 million. The company's debt-to-equity ratio stands at 0.7205, indicating a balanced capital structure. The current ratio and quick ratio are both 1.776, suggesting strong short-term liquidity.
Liquidity
Cboe Global Markets maintains a strong balance sheet to support its operations and strategic initiatives. As of September 30, 2024, the company had $880 million in adjusted cash on its balance sheet and $400 million available under its revolving credit facility. This solid liquidity position enables Cboe to invest in growth opportunities and navigate potential market challenges.
Industry Trends
The exchange industry has seen steady growth, with a compound annual growth rate (CAGR) of approximately 6-8% over the past 5 years. This growth has been driven by factors such as increasing global trade, the rise of passive investing, and the growth of derivatives trading. Cboe's diverse product offerings and global presence position it well to capitalize on these industry trends.
Outlook and Conclusion
Despite the challenges, Cboe Global Markets remains well-positioned for continued success. The company's diversified product portfolio, global footprint, and commitment to innovation have allowed it to navigate the ever-changing financial markets landscape.
For the fiscal year 2025, Cboe has provided guidance for organic total net revenue growth in the mid-single-digit range and organic net revenue growth for its Data Vantage business in the mid-to-high single-digit range. The company expects adjusted operating expenses to be between $837 million and $852 million, representing 4.8% to 6.7% growth. Capital expenditures are projected to be $75 million to $85 million, with depreciation and amortization expected to be $55 million to $59 million. The effective tax rate on adjusted earnings is anticipated to be between 28.5% and 30.5%. Interest expense, net of interest income, is expected to be $5 million to $6 million in Q1 2025.
The company has also outlined plans to invest in strategic growth initiatives, including expanded sales and educational efforts in the Asia-Pacific region, the launch of a securities financing transaction offering in Europe, and continued marketing efforts to improve investor education and monetize the expanding access to its index options products.
Cboe expects a more modest impact from earnings on investments and other income in 2025 compared to previous years, as they have reached a more mature phase in their investment cycle. This guidance reflects the company's commitment to sustainable growth and its ability to adapt to changing market conditions.
With a strong balance sheet, disciplined capital allocation, and a talented management team, Cboe Global Markets is poised to continue powering the world's financial markets, delivering value to its shareholders, and expanding its reach in the ever-evolving global financial ecosystem. The company's focus on innovation, global expansion, and strategic partnerships positions it well to capitalize on emerging opportunities in the exchange industry and maintain its leadership position in the years to come.