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MarketAxess (MKTX) posted record Q2 FY2025 revenue driven by new trading protocols and international growth, but faces margin compression and competitive pressures despite strong execution and upcoming catalysts.

# MarketAxess Delivers Record Q2 FY2025 Revenue, Driven by New Protocols Despite Margin Pressures

---

## Executive Summary

- **MarketAxess Holdings Inc. (MKTX) posted record Q2 FY2025 revenue of $219.5M, up 11% YoY and 5% QoQ, beating consensus estimates.** GAAP EPS reached $1.91 (up 11% YoY), and Non-GAAP EPS was $2.00 (up 16% YoY), both exceeding expectations.
- **Earnings quality was solid, with growth primarily volume-driven**—over 50% of incremental revenue came from new trading protocols (block, portfolio, dealer-initiated), not from pricing or one-off events. However, **net income and EBITDA margins compressed slightly** due to higher operating expenses and tax charges.
- **Management maintained a bullish yet measured tone,** highlighting momentum from new protocols and strategic initiatives like the Mid‑X launch, while acknowledging near-term margin headwinds and competitive pressures in U.S. High Grade market share.
- **Risks include declining fee per million, margin compression, and market share loss in core segments.** However, **opportunities in international and municipal bond trading (+27% and +34% YoY, respectively), the Mid‑X protocol, and a strong balance sheet** (over $620M in cash/investments) provide significant upside.
- **Catalyst watch:** The upcoming Mid‑X launch in U.S. Credit and continued international expansion are key near-term drivers. Market reaction is expected to be positive, but tempered by ongoing margin and fee structure concerns.

---

## Performance Snapshot

| Metric                | Reported   | Consensus | Surprise | YoY Change |
|-----------------------|------------|-----------|----------|------------|
| Revenue               | $219.5M    | $212.0M   | +$7.5M   | +11%       |
| GAAP EPS              | $1.91      | $1.80     | +$0.11   | +11%       |
| Non-GAAP EPS          | $2.00      | $1.90     | +$0.10   | +16%       |
| EBITDA Margin         | 50.5%      | 51.0%     | -0.5pp   | -1.0pp     |
| Net Income Margin     | 32.4%      | 33.0%     | -0.6pp   | -0.5pp     |
| International Volumes | +27% YoY   | —         | —        | +27%       |
| Municipal Volumes     | +34% YoY   | —         | —        | +34%       |

---

## Earnings Quality

- **Revenue growth was high quality, driven by sustainable volume increases** from new trading protocols rather than one-time events or pricing changes.
- **Margins compressed modestly:** Net income margin fell to 32.4% (from 32.9% QoQ), and EBITDA margin to 50.5% (from 51.5% QoQ), reflecting a 10% YoY rise in expenses (6% ex-notables) due to repositioning and acquisition costs, as well as a significant increase in tax liabilities.
- **Cost structure remains disciplined,** but ongoing investments in technology, new hires, and strategic initiatives are weighing on short-term profitability.

---

## Management Commentary & Guidance

- **Management’s tone was bullish but realistic,** emphasizing record revenue, the success of new trading protocols, and the upcoming Mid‑X launch as key growth drivers.
- **Forward-looking statements focused on long-term growth,** robust free cash flow, and continued share repurchases, while acknowledging near-term challenges such as margin headwinds and lower fee per million.
- **No explicit forward guidance was provided,** but management’s strategic focus and investment plans align with market expectations for continued growth.

---

## Key Risks

- **Margin compression and cost inflation** from higher operating expenses and tax liabilities.
- **Declining fee per million and market share loss** in U.S. High Grade trades due to increased phone/chat activity.
- **Regulatory and competitive risks** as the trading landscape evolves and new protocols are adopted.

---

## Expected Market Reaction

- **Analysts and investors are likely to respond positively** to the record revenue and EPS beat, as well as the strong growth in new trading protocols and international volumes.
- **Caution may persist** due to ongoing margin and fee pressures, with the market awaiting evidence of cost efficiency improvements and market share recovery before fully re-rating the stock.

---

## Final Takeaway

- **Q2 FY2025 was a strong quarter for MarketAxess,** with record revenue and robust volume-driven growth, but margin pressures and competitive dynamics in core segments remain headwinds.
- **The market may be underestimating the upside from the Mid‑X launch and international expansion,** while overemphasizing near-term margin concerns relative to the company’s strong balance sheet and strategic investments.
- **Upcoming catalysts:** The Mid‑X protocol launch in U.S. Credit and further international volume growth will be key to watch in the next quarter.

---

MarketAxess Q2: Record Revenue, Margin Headwinds

MarketAxess (MKTX) is poised for margin recovery in Q2 2025, driven by strong trading volume growth and platform adoption, despite near-term profitability pressures from a one-time tax reserve and softness in U.S. credit trading.

# MarketAxess Holdings Inc. (MKTX): High-Velocity Trading Segments Set the Stage for Margin Recovery in Q2 2025

## Executive Summary: Bullish on Margin Rebound and Platform Momentum

We are **Bullish** on MarketAxess Holdings Inc. (MKTX) for the upcoming quarter, driven by accelerating trading volumes and robust adoption of new trading platforms. **Q1 FY2025 revenue reached $208.6M** (slightly below consensus by $1.1M), but the quarter was impacted by a **one-time $54.9M tax reserve**, compressing net margin to **7.2%** from **32.2%** in Q4 FY2024. Excluding this non-recurring item, underlying business momentum remains strong, with **rates trading revenue up 34% YoY** and **block trading ADV up 41% YoY**. The market may be underestimating the speed at which margin can recover as the tax impact fades and as high-growth segments (rates, portfolio trading) continue to outpace legacy credit trading.

## Recent Trends Signal What’s Next: Volume Acceleration and Margin Volatility

Recent quarters highlight a clear pivot toward high-growth trading segments and platform innovation. **Total trading volume surged 31% YoY to $2.62T** in Q1 FY2025, with **portfolio trading market share up 450 bps YoY**. However, **U.S. credit ADV declined 7% YoY**, offset by strength in rates and emerging markets. Margins were volatile due to the tax reserve, but underlying operating leverage remains intact.

### Revenue, Margin, and EPS Trends (Last 4 Quarters)

| Quarter      | Revenue ($M) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|--------------|--------------|------------------|----------------------|---------------|---------|
| Q2 FY2024    | 195.2        | 60.1             | 38.5                 | 28.7          | 1.74    |
| Q3 FY2024    | 201.7        | 61.3             | 39.2                 | 29.5          | 1.79    |
| Q4 FY2024    | 209.7        | 62.0             | 40.1                 | 32.2          | 1.81    |
| Q1 FY2025    | 208.6        | 59.8             | 36.0                 | 7.2           | 1.87    |

**Key trend:** Revenue and EPS are trending upward, but Q1 net margin was temporarily depressed by a non-recurring tax reserve.

## Management’s Forward Tone and Positioning: Cautious Optimism with Focus on Growth Segments

Management’s commentary on the Q1 2025 call was notably more optimistic than in prior quarters, emphasizing record trading volumes and market share gains in rates and portfolio trading. For example:  
> “We’re seeing record volumes and strong growth in our rates and portfolio trading segments.” (Q1 2025 Earnings Call)

This contrasts with the more defensive tone last year, when management focused on “navigating challenging credit market conditions.” The current messaging signals confidence in the durability of recent volume gains and a belief that margin headwinds are transitory.

## KPI Trends & Upcoming Quarter Drivers: Platform Adoption and Trading Mix

The most relevant KPIs for the next quarter are trading volume, platform adoption, and product mix.

### Key KPI Movements

| KPI                        | Q1 FY2024 | Q4 FY2024 | Q1 FY2025 | YoY Change | QoQ Change |
|----------------------------|-----------|-----------|-----------|------------|------------|
| Total Trading Volume ($T)  | 2.00      | 2.45      | 2.62      | +31%       | +7%        |
| U.S. Credit ADV ($B)       | 12.5      | 13.8      | 11.6      | -7%        | -16%       |
| Block Trading ADV ($B)     | 2.1       | 2.7       | 3.0       | +41%       | +11%       |
| Portfolio Trading Share (%)| 18        | 21        | 22.5      | +4.5 pts   | +1.5 pts   |
| X-Pro Platform Adoption (%)| 75        | 85        | 90        | +15 pts    | +5 pts     |

- **Trading Volume:** Sustained double-digit YoY growth supports revenue upside.
- **Platform Adoption:** 90% of portfolio trading now on X-Pro, driving operational leverage.
- **Product Mix:** Shift toward rates and portfolio trading supports higher fee capture and mitigates U.S. credit softness.

## Missed by the Street: Underlying Profitability Pressures

While headline volume growth is strong, a subtle but important risk is emerging:  
> “We continue to face challenges in U.S. credit share.” (Q1 2025 Earnings Call)

This, combined with a **drop in ROE from 4.7% in Q4 to 1.1% in Q1**, signals that profitability pressures may persist beneath the surface, especially if fee capture in legacy segments continues to erode. The Street may be underestimating the need for further operational adjustments or pricing changes.

## Scenarios for the Upcoming Quarter: Bull, Base, and Bear Cases

### Scenario Table

| Scenario | Revenue ($M) | EPS (Adj.) | Net Margin (%) | Key Assumptions                                                      |
|----------|--------------|------------|----------------|-----------------------------------------------------------------------|
| Bull     | 217–221      | 1.95–2.00  | 10–12          | Volume acceleration, tax normalization, strong X-Pro adoption         |
| Base     | 208–212      | 1.87–1.90  | 7–9            | Stable product mix, moderate growth, partial margin recovery          |
| Bear     | 202–206      | 1.75–1.80  | 4–6            | Fee capture headwinds, muted platform growth, lingering tax impacts   |

**Most likely scenario:** The **Base case** is most probable, given current volume trends, management’s tone, and the expectation that the tax reserve impact will not repeat. However, upside exists if platform adoption and rates trading momentum accelerate further.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter      | Revenue ($M) | EPS ($) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) |
|--------------|--------------|---------|------------------|----------------------|---------------|
| Q2 FY2024    | 195.2        | 1.74    | 60.1             | 38.5                 | 28.7          |
| Q3 FY2024    | 201.7        | 1.79    | 61.3             | 39.2                 | 29.5          |
| Q4 FY2024    | 209.7        | 1.81    | 62.0             | 40.1                 | 32.2          |
| Q1 FY2025    | 208.6        | 1.87    | 59.8             | 36.0                 | 7.2           |

### KPI Movement Table

| KPI                        | Q1 FY2024 | Q4 FY2024 | Q1 FY2025 | YoY Change | QoQ Change |
|----------------------------|-----------|-----------|-----------|------------|------------|
| Total Trading Volume ($T)  | 2.00      | 2.45      | 2.62      | +31%       | +7%        |
| U.S. Credit ADV ($B)       | 12.5      | 13.8      | 11.6      | -7%        | -16%       |
| Block Trading ADV ($B)     | 2.1       | 2.7       | 3.0       | +41%       | +11%       |
| Portfolio Trading Share (%)| 18        | 21        | 22.5      | +4.5 pts   | +1.5 pts   |
| X-Pro Platform Adoption (%)| 75        | 85        | 90        | +15 pts    | +5 pts     |

### Key Management Quotes

1. **“We’re seeing record volumes and strong growth in our rates and portfolio trading segments.”**  
   Source: Q1 2025 Earnings Call  
   *Signals confidence in high-growth segments offsetting legacy headwinds.*

2. **“The $54.9 million tax reserve is a one-time item and not expected to recur.”**  
   Source: Q1 2025 Earnings Call  
   *Indicates margin recovery potential next quarter.*

3. **“90% of portfolio trading was executed through X-Pro in May.”**  
   Source: May 2025 Trading Volume Update  
   *Highlights rapid platform adoption and operational leverage.*

4. **“We continue to face challenges in U.S. credit share.”**  
   Source: Q1 2025 Earnings Call  
   *Points to ongoing pressure in legacy business lines.*

5. **“Our acquisition of RFQ-hub Holdings LLC expands our reach in European markets.”**  
   Source: Q1 2025 Earnings Release  
   *Supports incremental revenue growth from new geographies.*

6. **“We are encouraged by the early signs of normalization in demand.”**  
   Source: Q1 2025 Earnings Call  
   *Suggests stabilization after recent volatility.*

7. **“We expect continued investment in product innovation to drive efficiency.”**  
   Source: Q1 2025 Earnings Call  
   *Implies ongoing cost discipline and margin focus.*

---

**Bottom Line:** MarketAxess is positioned for a margin rebound and continued revenue growth, with platform innovation and high-velocity trading segments leading the way. The key risk remains profitability pressure in legacy credit trading, but the overall outlook for Q2 2025 is positive, with upside if volume and platform trends persist.

MKTX: Margin Recovery Driven by Platform Growth