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You are probably familiar with one or more of the many retail platforms, like E * Trade and Robinhood. But professionals need more powerful tools, and more are turning to Web Markets (NASDAQ: TW) as their trusted trading platform.
Tradeweb is aimed at institutional investors who trade bonds and stocks at huge volumes, and its growing market share shows that it is emerging as the preferred trading platform. However, the company goes unnoticed because its business simply does not have name recognition.
On the surface, Tradeweb underperformed the S&P 500 Index over the past year, with a 28.3% return versus the 40.2% return in the overall market. Much of this reflects the outsized rise in the company’s stock price after the volatile March, which cooled in the months that followed. However, its stock has picked up since then, with Tradeweb up 51.5% from the 29.4% return of the S&P 500 since August 2021. And since its IPO in April 2019, Tradeweb has crushed it, returning investors to 126.7% compared to the 46.4% of the S&P 500.. Here is why you should pay attention to Tradeweb.
Image source: Getty Images.
Stellar and constant long-term growth
Tradeweb provides e-commerce to institutional clients such as hedge funds, insurance companies and central banks, as well as wholesale traders such as market makers. When the company was founded, it was looking to bring the trading process into the computer age and eliminate outdated phone orders. Since 1996, she has played an important role in modernizing trading with her electronic trading platform, starting with US Treasuries.
Tradeweb crushed it. From 2004 to 2020, the company increased its revenue at a compound annual rate of 12.5%. Very impressive, especially considering that there were two recessions during this period. Over the past four years, the company has grown its turnover by 14.6% per year. This growth continued in the first quarter of this year, when the company recorded total revenues of $ 273 million, an increase of 16.5% from last year.
How Tradeweb Makes Its Millions
The majority of Tradeweb’s income comes in the form of transaction fees. In the first quarter, the company raked in $ 217.9 million in transaction fees, up 18.8% from a year ago. Subscription fees represent $ 53 million in additional revenue and are up 7.9% from a year ago.
Tradeweb’s platform allows trading on different asset classes, but its interest rates and credit products – like US Treasuries, high yield debt, and corporate bonds – account for 80%. of his income.
The company saw the volume of its interest rate asset class increase by 13%, with an average daily volume of $ 665 billion, which generated revenue of $ 143 million in the quarter. CEO Lee Olesky noted in the company’s recent results that the record central bank bond issuance has fueled the increase in global bond trading.
Its credit asset class saw volume drop 18% to an average daily volume of $ 27 billion. This drop was due to a 35% drop in derivative volume, but record trading volumes in US and European corporate bonds allowed income from credit assets to rise 38% to 74%. $ 3 million in the quarter.
Capture a growing market share
What makes Tradeweb great is the role it plays in interest rates and credit markets. The company has grown steadily over the years and is perfectly positioned for current market conditions. With the growing importance of the Federal Reserve coupled with huge fiscal stimulus, government bond issues are reaching record highs and generating record trading activity on the Tradeweb platform.
Even better news for Tradeweb is that it continues to take market share from its competitors, Bloomberg being its main competitor. In the first quarter, Tradeweb accounted for 15.3%, 19.4% and 6.9% respectively of the US Treasuries, US High Quality Credit and US High Yield Credit markets – increases from its 12.5%, 15% and 4.1%. shares of these markets last year.
Olesky said the company’s electronic trading platform, which pioneered the trading process for institutional clients, deserves full credit for the company’s growth. The company prides itself on the speed of execution on its platform as one of its game-changing features, and its customers seem to agree as more and more people migrate to the platform.
The continued growth in global bond and equity trading should serve as a tailwind for the company, and its impressive growth over the years makes Tradeweb deserve more attention.
This article represents the opinion of the author, who may disagree with the “official†recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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