Intercontinental Exchange

Intercontinental Exchange reported decent second-quarter earnings as strong trading volume and accelerated data revenue growth supported earnings growth. Net revenue increased 5% from last year to 2.7 billion, while adjusted earnings per share rose to $1.90 from $1.81.

Why it matters: Along with earnings, Intercontinental Exchange announced that it will buy the fixed income trading platform, MarketAxess, at $167 per share in an all-cash deal worth $6 billion. The acquisition is expected to close in the first half of 2027. Beyond deal news, Intercontinental reported solid second-quarter earnings. While the year-over-year growth figures are not particularly impressive, the firm is comparing to a very strong second quarter last year, when tariff-related market volatility spiked trading volume industry-wide. Notably, the firm's recurring revenue, which we generally value more highly, rose 8% while the firm's transaction revenue increased only 2%. Additionally, the firm's fixed income data business was particularly strong, with revenue rising 9% from last year. This is a positive sign given the firm's latest acquisition.

The bottom line: As we incorporate the MarketAxess deal into our model, we are increasing our fair value estimate for wide-moat-rated Intercontinental Exchange to $182 from $178. We see the shares as undervalued at the current price as we think the market has overreacted to hypothetical competitive threats like perpetual futures and prediction markets. We like this deal for Intercontinental Exchange as we think it is getting an excellent price for MarketAxess. The $163 deal price is well below the $219 we think MarketAxess is actually worth as an independent company. Moreover, we think the firm's goal for $100 million in expense synergies over three years is readily achievable, and we see meaningful strategic value in gaining access to MarketAxess' value trading data for use in Intercontinental's existing fixed income data and index businesses.

After incorporating ICE's planned acquisition of MarketAxess into our projections for the firm we are increasing our fair value estimate to $182 per share from $178. Our projections assume ICE will successfully achieve its $100 million expense synergy goal over three years, which seems reasonable to us. Our fair value estimate is around 28 times our projected 2026 earnings estimate and translates to a 2026 enterprise value/EBITDA ratio of 16.8.

We project that ICE’s exchanges will see solid growth in transaction revenue. We expect low-single-digit growth in the average daily trading volume of ICE’s futures contracts over the next five years, with energy futures being a major driver of that growth. Beyond 2025, we expect ICE's exchange revenue growth to face a modest headwind in 2027 due to lower industrywide trading activity. Increased uncertainty and volatility have been driving strong trading volume across multiple asset classes, with ICE a major beneficiary. While we expect market activity to remain high through much of 2026, we expect partial normalization in 2027 and 2028.

We also expect slow growth in the NYSE’s data and listing businesses as the company faces the dual headwinds of market share loss to Nasdaq's listing service and industry pushback on its equity data prices. This should be offset by strong demand for ICE's market data, which saw a sharp acceleration in growth in 2025. We expect exchange revenue to grow at an average rate of 4.6% over the next three years, down from a 10.8% compound annual growth rate over the last three years.

We project that ICE’s fixed-income and data analytics segment will continue its trend of steady growth. The core of the segment is ICE’s fixed-income pricing service, which benefits from powerful tailwinds as the increasing use of fixed-income exchange-traded funds and regulatory needs drive demand for its products. That said, we expect ICE's CDS clearing business to face headwinds from lower interest income as rates fall.

We do see an opportunity for long-term growth in the mortgage technology segment, as the electronification of the mortgage process is in the early stages and ICE has a compelling product offering. Around half of ICE’s origination technology revenue is transactional, with fees charged on a per-mortgage basis, and a cyclical high in mortgage origination volume in 2020 and early 2021 led to rapid revenue growth for the segment. Mortgage volume has fallen dramatically since high mortgage rates have pushed the industry from cyclical peak to cyclical trough in short order. We expect mortgage volume to recover as interest rates decline, which will be a major tailwind to the segment, but the timing and extent of this recovery are difficult to predict, given the reliance on lower mortgage rates.

We anticipate that MarketAxess' lower operating margin will be a modest headwind to ICE's own margins post-acquisition. We forecast its operating margin to decrease to 47.1% by 2030 from 49.6% in 2025.

Intercontinental Exchange has a Wide Morningstar Economic Moat Rating as a result of its position as a dominant futures exchange for global energy contracts, the strength of the New York Stock Exchange, and the value of its proprietary data. The fixed-income and data-services segment and the company’s mortgage technology business have less of a moat than the futures exchange business. However, because most revenue and operating income come from its financial exchanges, we believe the company as a whole has a wide moat that will allow it to earn strong returns on invested capital for the foreseeable future.

ICE’s crown jewel asset is its futures business, as the firm is a leading trading venue for global futures, particularly energy futures through its Brent oil and natural gas contracts. Competition among futures exchanges depends largely on implicit trading costs and collateral efficiencies, not the transaction fees the exchanges charge. For example, the minimum tick size for ICE’s Brent futures contracts is $10 per contract compared with an average transaction fee for energy futures of about $1.45. So, even if another exchange charges less than ICE, a 1-tick-size worse execution would wipe out any savings to the customer from a lower exchange fee, giving ICE considerable pricing power.

The ability of an exchange to keep implicit costs low is largely a function of the amount of liquidity on the exchange, leading to powerful network effects for futures exchanges. The more buyers and sellers there are on a platform, the more valuable the platform is to other buyers and sellers since they will be able to conduct transactions at a lower total cost. Contracts purchased at ICE’s exchanges cannot be closed at another exchange and vice versa, which keeps ICE’s liquidity pools captive to its exchanges and creates additional barriers to entry for potential competitors. ICE further defends its futures business by acting as a vertically integrated clearinghouse. If one of ICE’s customers fails to settle a contract, the exchange will step in and close out the transaction after seizing the collateral of the defaulted counterparty. Any potential losses by the counterparty are covered by a waterfall structure in which ICE covers the losses up to a certain amount. This substantially reduces the systemic risk for investors and helps attract additional trading volume to exchanges.

ICE’s equity trading business, on the other hand, lacks powerful network effects to give it pricing power for its exchange fees. Unlike futures, equity purchased at the NYSE can be sold on a different exchange. Without the ability to monetize the NYSE’s intangible assets, this part of ICE’s business would likely be considered no-moat, given limited return potential.

However, ICE is able to generate associated revenue from the NYSE by making use of its intangible assets to sell data, connectivity, and listing services. While the NYSE participates in the common tape system, in which a portion of its trade data is provided to a public entity at an agreed-upon price, ICE can sell a more complete dataset to investors at higher speeds. ICE also has the strength of the NYSE’s brand, which makes it desirable for companies to be listed on the exchange. ICE charges companies listing fees, which provide the company with a reliable stream of annual revenue that supplements ICE’s equity transaction fees. Equity execution can be seen as a loss leader that enables ICE’s more profitable data and service-driven revenue streams to persist.

We believe ICE has less of a moat in its other segments, a view that is supported by their lower operating margins. The core of ICE’s fixed-income and data-services segment is its pricing and analytics business, which provides an independent pricing service for fixed-income securities. Some bonds can go days without trading, complicating intraday or even end-of-day valuations for a fixed-income portfolio. In this situation, it is necessary to manually value the bond in order to estimate a fair value. As compliance needs have risen and investors continue to shift toward passive investment vehicles, the need for reliable pricing data has increased.

A new competitor would need to deal with the importance of intangible assets in this industry. Pricing data for fixed-income portfolios is a matter of compliance and investor trust. Investors need to be able to trust that an investment fund is providing them net asset valuations that are unbiased and accurate. The investment fund itself also needs to be confident that the bond valuations it uses are compliant with its regulatory needs. ICE’s brand name and record provide a significant benefit to the value of the service by creating confidence in the valuations it produces.

ICE’s mortgage technology segment is the result of several acquisitions over the years, most notably the purchases of Ellie Mae in 2020 for $11 billion and Black Knight in 2023 for $11.7 billion. Through this segment, ICE provides services that allow for the electronic registration, origination, and servicing of mortgages, as well as data analytics for mortgage issuers and investors. The company’s goal for its mortgage technology segment is to facilitate the electronification of the entire mortgage process. This will require consolidating a highly fractured industry with multiple layers and participants onto a single platform. The more participants, regulators, and data there are on the platform, the more value the platform has. Many of the company’s goals for this segment, regarding the electronification of mortgages, are still in their relatively early stages, but its heavy investments in the space have accelerated its growth. While we do not believe that the company’s fixed-income data and mortgage technology segments have a wide moat, the size and strength of ICE’s exchange business ensure that the company as a whole retains a wide moat rating.

ICE has become increasingly less reliant on transactional revenue as it expands its data and service offerings organically and through acquisitions. If trading volume declines, we expect the firm to be less affected than in the past.

ICE owns highly valuable proprietary data assets that it has been able to monetize effectively.

With the acquisition of Ellie Mae and the purchase of Black Knight, ICE has the opportunity to benefit from the digitization of the mortgage industry.

ICE's mortgage technology segment could continue to struggle if mortgage rates remain persistently high.

While ICE has become less reliant on its exchange revenue, it still receives a significant amount of revenue from its energy futures. A drop in energy volatility could have a significant impact on earnings.

ICE is highly acquisitive. If management overpays for an asset, it could destroy value for shareholders.