Many investors view the financial services sector as dull and complicated, with many only thinking of big banks, investment funds, and insurance companies. However, this article won’t discuss any such companies. Instead, we will dive into the businesses that provide the products and services used by the banks, insurers, and asset managers to buy and sell equities, bonds, and many other financial instruments.
Here are three financial services stocks that have experienced strong revenue growth over the past few years.
Tradeweb Markets, Inc.
Tradeweb Markets, Inc. (NASDAQ: TW) builds and operates electronic marketplaces for rates, credit, equities, and money markets. The company has approximately 2,500 institutional, wholesale, and retail clients globally.
Tradeweb’s first-quarter revenue grew 13.9% year-over-year (YoY) to $311.5 million, with earnings increasing 13.3% to $115.1 million after accounting for currency changes. This growth was due to average daily traded volume rising by 10.9%, with fees per million dollars traded growing 5.8%. Between 2016 and 2021, Tradeweb has increased revenues at a compound annual growth rate (CAGR) of 15.7%, which is impressive for a financial services company. These figures indicate that Tradweb would make a suitable investment for investors looking for growth stocks in the cyclical financial sector.
The company’s revenue is heavily dependent on higher trading volumes though, so the current downturn may see investors switch to cash and reduce their trading while waiting for the market to bottom out. This may already be priced into the company’s shares as its share price has declined 28.5% year-to-date.
MarketAxess Holdings, Inc.
MarketAxess Holdings, Inc. (NASDAQ: MKTX) operates an electronic trading platform for institutional investors and broker-dealer companies. The company focuses on credit markets while providing market data and post-trade services to clients.
The company recorded revenue of $186 million in the first quarter, down from $195 million a year ago. Net income fell at a steeper rate of 19.5% YoY due to lower fees caused by higher bond yields, shorter yields to maturity, and higher trading in low-fee emerging market credit. This poor performance does not represent the company’s historical trends, which saw revenue and operating income grow at a CAGR of 15% over the past ten years.
MarketAxess’ revenues predominantly come from the UK and U.S., which exposes the company to heightened regional risks compared to its competitors. However, the company has recently made geographic diversification its focus, with total active international clients up 8% (YoY), led by an increase of 15% in Asia-based clients.
Like Tradeweb, MarketAxess relies on high trading volumes for its revenue, which makes its short-term outlook uncertain. However, the company has demonstrated it can offer clients new products to diversify and grow its revenues which may help it weather the storm and come out stronger.
Virtu Financial, Inc.
Virtu Financial, Inc. ((NASDAQ: VIRT) provides data, analytics and connectivity products to clients worldwide. Its products include offerings in execution, liquidity sourcing, analytics, and broker-neutral and multi-dealer platforms in workflow technology.
In Q1 2022, Virtu Financial saw revenue fall roughly 30% YoY from $1 billion to $701 million. High sales last year were due to the retail traders’ share of total trading being at its peak, roughly around the meme stock craze. Since then, the proportion of retail traders has fallen but remains double the levels seen in Q4 2019. Over the period 2013 to 2021, Virtu Financial saw revenue increase at a CAGR of 19.75%, while net income grew at a CAGR of 12.78%, delivering strong returns for investors. Similar to its peers in this article, Virtu has seen its share price fall by 19.79% since the start of the year.
The company is expanding its crypto offerings across the U.S., Canada, Europe, and Asia. Virtu Financial now trades over 100 crypto products across these markets, including ETFs. With the current ‘crypto Winter’, Virtu Financial will likely experience a fall in profits from this division. The crypto market is volatile, indicating the potential to generate lots of trading revenue for the company, but it is too early to estimate when this market will experience a resurgence.
Shane Vigna, Author at MyWallSt Blog