Cboe Global Markets, Inc. 10-K Analysis & Summary – 2/21/2025

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Cboe Global Markets, Inc.

10-K

Annual report

Filing date:

02/21/2025

TLDR:

Cboe Global Markets, Inc. demonstrated revenue growth driven by diversified product offerings. However, the closure of the Cboe Digital spot market and intense competition pose challenges.

ELI5:

Cboe is like a marketplace for stocks and other investments. They made more money this year, but they also face some challenges like tough competition and a failed attempt to get into digital assets.

Accession #:

0001628280-25-006984

Published on

March 16, 2025

Analyst Summary

Total revenues increased by 9% year-over-year.
Operating Margin: 53.0% (Decreased from 55.2% in 2023)
Adjusted EBITDA Margin: 65.2% (Increased from 64.9% in 2023)
The Options segment remains the largest revenue contributor.
The Digital segment experienced a loss, leading to a strategic shift.
Gross Profit Margin = 50.62%
Operating Profit Margin = 26.83%
Net Profit Margin = 18.68%
Return on Assets (ROA) = 9.82%
Return on Equity (ROE) = 17.87%
Basic EPS = $7.24, Diluted EPS = $7.21
Current Ratio = 1.78
Quick Ratio = 1.78
Cash Ratio = 0.74
Debt-to-Equity Ratio = 0.34
Debt-to-Assets Ratio = 0.18
Interest Coverage Ratio = 21.33
Asset Turnover = 0.53
Price-to-Earnings Ratio (P/E) = 29.13
Price-to-Book Ratio (P/B) = 5.16
Price-to-Sales Ratio (P/S) = 5.39
Enterprise Value to EBITDA (EV/EBITDA) = 18.26
Revenue Growth = 8.50%
Net Income Growth = 0.46%
EPS Growth = 1.12%
EBITDA = $1,237.1 million
Adjusted EBITDA = $1,351.6 million

Opportunities and Risks

Intense price competition in transaction fees.
Regulatory changes impacting market structure and fees.
Cybersecurity threats and potential system failures.
Dependence on key customers and exclusive licenses.
Challenges in managing global operations and acquisitions.
Growth in derivatives markets and data solutions.
Expansion into new geographies and asset classes (e.g., SFT).
Leveraging technology for innovation and efficiency.

Potential Implications

Stock Price

Monitor regulatory developments and their potential impact on Cboe’s business model.
Assess the company’s ability to manage competition and maintain market share.
Evaluate the performance of the remaining Cboe Digital business and its contribution to overall revenue.

Cboe Global Markets, Inc. (CBOE) 2024 10-K Filing Analysis

Executive Summary

This report analyzes Cboe Global Markets, Inc.’s 2024 10-K filing. Cboe demonstrated revenue growth driven by its diversified product offerings and global reach. Key highlights include the expansion of its derivatives markets, growth in data solutions, and strategic investments. However, the closure of the Cboe Digital spot market and intense competition pose challenges. Overall, the company appears financially sound, but investors should monitor regulatory changes and competitive pressures.

Company Overview

Cboe Global Markets, Inc. (CBOE) is a leading global exchange network, providing trading and investment solutions across multiple asset classes. The company operates through six segments: Options, North American Equities, Europe and Asia Pacific, Futures, Global FX, and Digital. Cboe’s strategy focuses on expanding its global derivatives network, enhancing recurring revenue through data solutions, and leveraging technology for innovation.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management attributes the revenue increase to growth in transaction and clearing fees, regulatory fees, and access and capacity fees. The MD&A highlights strategic initiatives, including new product launches and geographic expansion. However, the narrative also acknowledges challenges, such as intense price competition and regulatory uncertainties.

Financial Statement Analysis

Revenue Trends

Total revenues increased by 9% year-over-year, driven by growth in all segments. The revenue mix is diversified, with significant contributions from cash and spot markets, data solutions, and derivatives markets.

Key Ratios

Operating Margin: 53.0% (Decreased from 55.2% in 2023)
Adjusted EBITDA Margin: 65.2% (Increased from 64.9% in 2023)

The slight decrease in operating margin suggests increased operating expenses, while the increase in Adjusted EBITDA margin indicates improved operational efficiency.

Segment Performance

The Options segment remains the largest revenue contributor, followed by North American Equities. The Europe and Asia Pacific segment showed significant growth. The Digital segment experienced a loss, leading to a strategic shift.

Cash Flow Analysis

The company generated strong cash flow from operations. Capital allocation priorities include debt repayment, dividends, and share repurchases.

Risk and Opportunity Assessment

Risks

Intense price competition in transaction fees.
Regulatory changes impacting market structure and fees.
Cybersecurity threats and potential system failures.
Dependence on key customers and exclusive licenses.
Challenges in managing global operations and acquisitions.

Opportunities

Growth in derivatives markets and data solutions.
Expansion into new geographies and asset classes (e.g., SFT).
Leveraging technology for innovation and efficiency.

Uncommon Metrics

The filing mentions several uncommon metrics that provide deeper insights into Cboe’s performance:

Average Daily Volume (ADV): Used to measure trading activity in Options and Futures segments.
Average Daily Notional Value (ADNV): Used to measure trading activity in Equities and FX markets.
Net Capture per 10,000 Touched Shares: Used to measure the profitability of Canadian Equities.
Net Capture per Matched Notional Value (bps): Used to measure the profitability of European and Asia Pacific Equities and Japanese Equities.

Red Flags

The closure of the Cboe Digital spot market indicates challenges in the digital asset space.
The impairment of intangible assets related to the Digital segment raises concerns about the segment’s future performance.

Conclusion and Actionable Insights

Cboe Global Markets demonstrates a solid financial performance with diversified revenue streams. The company’s strategic focus on derivatives and data solutions positions it for future growth. However, investors should carefully monitor the risks associated with regulatory changes, competition, and cybersecurity. The closure of the Cboe Digital spot market and the impairment of related assets warrant attention.

Overall Assessment: Hold. While Cboe exhibits strong fundamentals, the identified risks and uncertainties suggest a cautious approach.

Recommendations:

Monitor regulatory developments and their potential impact on Cboe’s business model.
Assess the company’s ability to manage competition and maintain market share.
Evaluate the performance of the remaining Cboe Digital business and its contribution to overall revenue.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

Ratio/Metric: Gross Profit = Total revenues – Total cost of revenues = $4,094.5 – $2,022.1 = $2,072.4. Gross Profit Margin = Gross Profit / Total revenues = $2,072.4 / $4,094.5 = 50.62%
Trend: Previous Gross Profit = $3,773.5 – $1,855.5 = $1,918. Gross Profit Margin = $1,918 / $3,773.5 = 50.83%. Percentage Change = (50.62% – 50.83%) / 50.83% = -0.41%
Industry: The financial exchanges industry typically has high gross profit margins, often exceeding 60%, due to the nature of their business (technology and services). CBOE’s margin is lower, but still healthy. Competitors like Intercontinental Exchange (ICE) and Nasdaq (NDAQ) often have higher margins due to different revenue mixes.

Operating Profit Margin

Ratio/Metric: Operating Income / Total revenues = $1,098.4 / $4,094.5 = 26.83%
Trend: Previous Operating Profit Margin = $1,057.9 / $3,773.5 = 28.04%. Percentage Change = (26.83% – 28.04%) / 28.04% = -4.32%
Industry: A good operating margin for financial exchanges is typically above 30%. CBOE’s operating margin is slightly below this benchmark. ICE and NDAQ often have higher operating margins due to economies of scale and diversified revenue streams.

Net Profit Margin

Ratio/Metric: Net Income / Total revenues = $764.9 / $4,094.5 = 18.68%
Trend: Previous Net Profit Margin = $761.4 / $3,773.5 = 20.18%. Percentage Change = (18.68% – 20.18%) / 20.18% = -7.43%
Industry: A net profit margin of 15-25% is considered healthy for financial exchanges. CBOE’s net profit margin falls within this range.

Return on Assets (ROA)

Ratio/Metric: Net Income / Total Assets = $764.9 / $7,789.1 = 9.82%
Trend: Previous ROA = $761.4 / $7,487.5 = 10.17%. Percentage Change = (9.82% – 10.17%) / 10.17% = -3.44%
Industry: An ROA of 5-10% is generally considered good. CBOE’s ROA is at the upper end of this range, indicating efficient asset utilization.

Return on Equity (ROE)

Ratio/Metric: Net Income / Total Stockholders’ Equity = $764.9 / $4,279.6 = 17.87%
Trend: Previous ROE = $761.4 / $3,985.0 = 19.11%. Percentage Change = (17.87% – 19.11%) / 19.11% = -6.49%
Industry: An ROE of 15-25% is considered very good. CBOE’s ROE is within this range, indicating effective use of equity to generate profits.

Earnings Per Share (EPS)

Ratio/Metric: Basic EPS = $7.24, Diluted EPS = $7.21
Trend: Previous Basic EPS = $7.16, Diluted EPS = $7.13. Basic EPS Percentage Change = ($7.24 – $7.16) / $7.16 = 1.12%. Diluted EPS Percentage Change = ($7.21 – $7.13) / $7.13 = 1.12%
Industry: EPS growth is a key metric. CBOE’s EPS growth is positive, but relatively small.

Liquidity

Current Ratio

Ratio/Metric: Total Current Assets / Total Current Liabilities = $2,479.1 / $1,395.2 = 1.78
Trend: Previous Current Ratio = $1,979.3 / $1,383.4 = 1.43. Percentage Change = (1.78 – 1.43) / 1.43 = 24.48%
Industry: A current ratio of 1.5 to 2.0 is generally considered healthy. CBOE’s current ratio is within this range, indicating good liquidity.

Quick Ratio (Acid-Test Ratio)

Ratio/Metric: (Total Current Assets – Inventory) / Total Current Liabilities. Since inventory is not listed, we will assume it is 0. ($2,479.1 – 0) / $1,395.2 = 1.78
Trend: Previous Quick Ratio = ($1,979.3 – 51.3) / $1,383.4 = 1.39. Percentage Change = (1.78 – 1.39) / 1.39 = 27.91%
Industry: A quick ratio above 1.0 is generally considered acceptable. CBOE’s quick ratio is well above this level.

Cash Ratio

Ratio/Metric: (Cash and Cash Equivalents + Financial Investments) / Total Current Liabilities = ($920.3 + $110.3) / $1,395.2 = 0.74
Trend: Previous Cash Ratio = ($543.2 + $57.5 + 51.3) / $1,383.4 = 0.47. Percentage Change = (0.74 – 0.47) / 0.47 = 57.45%
Industry: A cash ratio above 0.5 is considered good. CBOE’s cash ratio is healthy and has improved significantly.

Solvency/Leverage

Debt-to-Equity Ratio

Ratio/Metric: Total Debt / Total Stockholders’ Equity = $1,441.0 / $4,279.6 = 0.34
Trend: Previous Debt-to-Equity Ratio = $1,439.2 / $3,985.0 = 0.36. Percentage Change = (0.34 – 0.36) / 0.36 = -5.56%
Industry: A debt-to-equity ratio below 1.0 is generally considered conservative. CBOE’s ratio is well below this level, indicating low leverage.

Debt-to-Assets Ratio

Ratio/Metric: Total Debt / Total Assets = $1,441.0 / $7,789.1 = 0.18
Trend: Previous Debt-to-Assets Ratio = $1,439.2 / $7,487.5 = 0.19. Percentage Change = (0.18 – 0.19) / 0.19 = -5.26%
Industry: A debt-to-assets ratio below 0.5 is generally considered healthy. CBOE’s ratio is well below this level, indicating low financial risk.

Interest Coverage Ratio (Times Interest Earned)

Ratio/Metric: Operating Income / Interest Expense = $1,098.4 / $51.5 = 21.33
Trend: Previous Interest Coverage Ratio = $1,057.9 / $62.4 = 16.95. Percentage Change = (21.33 – 16.95) / 16.95 = 25.84%
Industry: An interest coverage ratio above 5.0 is generally considered strong. CBOE’s ratio is very high, indicating a strong ability to meet its interest obligations.

Activity/Efficiency

Asset Turnover

Ratio/Metric: Total Revenues / Total Assets = $4,094.5 / $7,789.1 = 0.53
Trend: Previous Asset Turnover = $3,773.5 / $7,487.5 = 0.50. Percentage Change = (0.53 – 0.50) / 0.50 = 6.00%
Industry: Asset turnover varies widely. CBOE’s asset turnover is typical for the industry.

Valuation

Price-to-Earnings Ratio (P/E)

Ratio/Metric: Stock Price / EPS = $210.93 / $7.24 = 29.13
Industry: The average P/E ratio for the market is around 25. CBOE’s P/E ratio is slightly above this, suggesting it may be overvalued or that investors expect higher growth.

Price-to-Book Ratio (P/B)

Ratio/Metric: Market Cap / Book Value of Equity. Market Cap = Shares Outstanding * Stock Price = 104,693,373 * $210.93 = $22,074.2 million. Book Value of Equity = $4,279.6 million. P/B = $22,074.2 / $4,279.6 = 5.16
Industry: A P/B ratio between 3 and 5 is considered good. CBOE’s P/B ratio is slightly above this range.

Price-to-Sales Ratio (P/S)

Ratio/Metric: Market Cap / Total Revenues = $22,074.2 / $4,094.5 = 5.39
Industry: A P/S ratio below 3 is considered good. CBOE’s P/S ratio is above this range.

Enterprise Value to EBITDA (EV/EBITDA)

Ratio/Metric: EV = Market Cap + Total Debt – Cash and Cash Equivalents = $22,074.2 + $1,441.0 – $920.3 = $22,594.9 million. EV/EBITDA = $22,594.9 / $1,237.1 = 18.26
Industry: An EV/EBITDA ratio between 10 and 15 is considered fair. CBOE’s EV/EBITDA ratio is above this range.

Growth Rates

Revenue Growth

Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($4,094.5 – $3,773.5) / $3,773.5 = 8.50%
Industry: A revenue growth of 5-10% is considered good. CBOE’s revenue growth is within this range.

Net Income Growth

Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($764.9 – $761.4) / $761.4 = 0.46%
Industry: A net income growth of 5-10% is considered good. CBOE’s net income growth is below this range.

EPS Growth

Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($7.24 – $7.16) / $7.16 = 1.12%
Industry: An EPS growth of 5-10% is considered good. CBOE’s EPS growth is below this range.

Other Relevant Metrics

EBITDA and Adjusted EBITDA

EBITDA is a non-GAAP measure representing earnings before interest, taxes, depreciation, and amortization. Adjusted EBITDA further removes items like acquisition-related costs, gains/losses on investments, and other non-recurring items.
EBITDA = $1,237.1 million (down 1% from $1,252.1 million in 2023). Adjusted EBITDA = $1,351.6 million (up 9% from $1,244.8 million in 2023).
Significance: EBITDA and Adjusted EBITDA are used by management to assess operational performance. The adjustments provide a clearer picture of recurring profitability. The increase in Adjusted EBITDA suggests improved underlying operational efficiency, despite the decrease in EBITDA.
The adjustments seem reasonable as they remove non-recurring items, providing a better view of core operational performance.

Commentary

Cboe Global Markets demonstrates a mixed financial performance. Revenue growth is solid at 8.5%, but net income and EPS growth are minimal, indicating potential cost pressures. Liquidity is strong, as evidenced by healthy current and cash ratios. Leverage remains low, providing financial flexibility. While profitability metrics are generally good, the slight decrease in margins and ROE warrants attention to cost management and operational efficiency.