Goldman Reviews Q2 Results From BATS Global Markets

While Bats Global Markets Inc BATS reported robust 2Q16 results, with the EPS beating expectations, Goldman Sachs’ Alexander Blostein believes that with the stock trading at a premium to the NDAQ and SPX, there is limited upside potential.

Blostein maintained a Neutral rating on the company, with a price target of $25.

Strong 2Q Results

Bats Global Markets reported its 2Q16 EPS at $0.35, ahead of the estimate and the consensus, driven primarily by slightly higher revenues and lower tax rate, offset partially by marginally higher operating expenses.

Management attributed the revenue growth to strength in the U.S. options and U.S. equity segments, especially in market data and port fees.

For U.S. equity, port fees rose 11 percent year-on-year, with trading revenue increasing 10 percent year-on-year, driven by higher industry volumes, despite the slight decline in capture ratio and market share.

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For U.S. options, market share rose in options trading, while improved market data and port fees led to total segment revenue rising 7 percent quarter-on-quarter and 78 percent year-on-year.

Guidance

Blostein pointed out that “management expects fluctuations in US options capture ratio to improve its market share in an already tight competitive structure.”

Management raised the operating expense guidance for 2016, driven by increased recruiting and higher capex leading to increased depreciation in 2H16.

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