Cboe Global Markets, Inc. (CBOE) 1Q25 Earnings Review
Earnings Beat on Record Net Revenue and Tight Expense Control; 1Q Organic Growth Strong and Guidance Increased (Mainly on Volume Growth)
EPS Beats Consensus Forecast 6% as Record Revenue Comes in 1% Above Expectations
CBOE reported 1Q25 earnings prior to market open today. Total net revenue came in at a record $565M, up 8% Q/Q and up 13% Y/Y. The sequential increase in revenue was driven by an increase in derivatives markets revenues, which rose 11% Q/Q and were up 16% Y/Y to $309M. Meanwhile, cash and spot markets revenue increased by 8% Q/Q (+10% Y/Y) to $107M and data vantage revenue increased 2% Q/Q (+8% Y/Y) to $149M. On the expense side, total adjusted operating expenses came in at $192M, which was down 6% sequentially (unchanged Y/Y) and drove operating margins to 66.0% (up 500bps Q/Q and up 440bps Y/Y). Non-operating expense came in at $4M (-7% Q/Q, -144% Y/Y) and adjusted diluted EPS came in at $2.50, up 19% Q/Q (+17% Y/Y).
Relative to consensus estimates, revenue came in 1% above the street forecast of $562M. Meanwhile, pre-tax income was 5% above the street and adjusted EPS came in 6% above consensus.
In terms of key operating metrics, volume detail for the quarter was known coming into today’s print, however, to recap ADVs across CBOE’s multitude of transaction revenue lines was up substantially both Q/Q and Y/Y (full ADV details in the table below). New revenue metrics from today’s print include RPC detail across business lines. RPCs were mixed both sequentially and Y/Y with RPCs for U.S. equities, futures, clearing, E.U. equities declining sequentially while options, Canada equities, Australia equities, Japan equities and FX increased sequentially.
CBOE Earnings Summary and Key Operating Metrics
Source: company data and Tikr.com
Highlights from CBOE Earnings Call, Presentation and Press Release
In terms of the outlook going forward, CBOE 0.00%↑ management touched on several details during this morning’s earnings call that are worth highlighting:
Revenue Guidance – Increased total organic net revenue guidance for full year to mid-to-high single digits from mid-single digits previously. No change to Data Vantage organic net revenue guidance of mid-to-high single digits.
Adjusted Operating Expense Guidance – No change to range of $837 - $852M for the full year (implies 4.8% - 6.7% growth). 1Q actual adjusted expenses came in at $192M (implies annual expense of $770M), which suggests a ramp in expenses through year end (fairly typical for CBOE expense trajectory). Noted they expect marketing costs to reaccelerate, expected some costs related to CEO transition, and increased incentive comp given strong performance through April
Other Guidance Items – No change to D&A guide of $55 - $59M, tax rate guide of 28.5% - 30.5%, and capex guide of $75 - $85M. Net interest expense in 2Q expected to be $2 - $3M
Revenues Broadly – Record revenues set across Options, Europe and APAC, and FX segments
Other notable highlights from the earnings call/press release:
Capital / Capital Return – Buybacks were somewhat light in 1Q but were held out of the market for about 6 weeks due to blackout period. Stock has also performed very well of late, hitting all-time highs. Focused on best options for capital allocation for shareholders. Get the sense they would lean into buybacks on any signs of weakness. Mentioned that they had repurchased $5M in shares in April
M&A – Given recent CEO appointment (see below) there was a question on appetite for M&A. Mentioned that CBOE has a ton of cash on hand and low leverage, business is performing well. Focus for new CEO will be on best outcome for shareholders whether that be organic growth or inorganic growth. I believe you could see M&A activity pick up after this brief hiatus and focus on improving the core of CBOE
Tech Migration – After 1Q, all equities and derivatives markets have been migrated to the new Cboe Titanium platform, unifying the tech stack
Sales and Volumes Commentary – During 1Q had record 0DTE options volumes, record index options trading in overnight trading hours, night of DeepSeek news saw a record single day for overnight trading hours volumes and that record was broken multiple times during April. Noted that 65% of data sales occurred outside the U.S., suggesting strong demand from international clients for CBOE’s line of products
Organic Revenue Growth – Came in at >12% for 1Q25, the highest level in at least 9 quarters. Data Vantage revenue growth came in at 8.5%, the highest level since 3Q23. Granted much of the total company organic revenue growth could be chalked up to strong volumes, which can be fleeting, but this was a really strong quarter for CBOE
Other news:
CBOE Appoints Craig Donohue as New CEO
Mr. Donohue will begin his role as CEO and a member of the Board of Directors on May 7
Mr. Donohue succeeds Fred Tomczyk who has been serving as CEO during the company’s search for a long-term successor following the departure of the company’s prior CEO
This announcement concludes a year and a half search process for the right candidate
About Mr. Donohue
Seasoned industry executive with over 30 years of experience
Experience includes two decades at CME where he spent 8 years as CEO
Served as Chairman of the Board at OCC where he also spent 3 years as CEO
Led completion of $20B in M&A transactions at CME
This is a very strong hire for CBOE and I’m excited to see what the next chapter holds for the org
Broad Thoughts / Outlook
I thought this was a really strong quarter out of CBOE. Organic revenue growth was great, particularly on the data side, operating margins were the highest since the extreme volumes seen in 2020, EBITDA margins were the highest since 1Q21. I think there is a bit of disappointment on the expense guide, unchanged from the guidance provided on the 4Q24 earnings call, despite tight expense control in 1Q. However, the guidance implies average operating expenses in 2Q25 – 4Q25 will be 13% higher than what CBOE printed in 1Q25. It’s not unheard of for CBOE expenses to increase at this level (it occurred in 2022 – however CBOE was still doing M&A in this period), but it would be at the higher end of typical expense growth in the back end of the year, thus I believe there is still opportunity for CBOE to outperform on expenses for the full year. The one caveat to this is FX rates have moved around a lot in early 2025 and a weaker dollar will likely have an impact on expenses throughout the year (though offset by higher revenues). Overall, I thought it was a strong update, I think the stock is being weighed down by the unchanged expense guide and the market ripping (and VIX tanking) post-U.S. April jobs number this morning.
Volumes are off to a strong start in 2Q-TD. Total April ADV for CME’s futures and options businesses is tracking up 50% Y/Y in the wake of the tariff induced volatility in the markets. By product, interest rates are up 66% Y/Y, equities are up 39% Y/Y, FX is up 42% Y/Y, ags are up 22% Y/Y, energy is up 44% Y/Y and metals are up 5% Y/Y. If the current strong volume environment were to persist through quarter end, I see 33% upside to 2Q EPS relative to 1Q EPS based just on volume outperformance alone.
CBOE Volume April, 2Q-TD and YTD
Source: Cboe Global Markets and OCC
As I have stated previously, I do not anticipate the current elevated volume levels to persist indefinitely. However, if I were to assume 10% upside to volumes for CBOE that translates into 8% EPS upside to consensus estimates. Applying 8% upside to the current consensus NTM estimate of $9.52 implies NTM EPS of $10.28. Based on where shares are currently trading ($218/share) this implies a multiple on adjusted consensus EPS of 21.2x, which is a 3% premium to CBOE’s 3-year average multiple of 20.6x.
I continue to anticipate heightened levels of volatility / volumes in the coming months given the macro / geopolitical backdrop. As such, I continue to want to own shares of CBOE. That being said, I’m beginning to think more about how long I want to hold for given the recovery in share price post sell-off following liberation day and the fact that CBOE is now trading at a modest premium to its longer-term average. Further, I fear that people will sell the stock at the faintest whiff of calm in the markets (which we’ve already seen with CBOE’s volumes declining in the past week or so), as is being seen in price action today.