EUR 850.00 For Business Accounts Only

Morningstar | Intercontinental Exchange Should Be Viewed as a Financial Data Rollup

Intercontinental Exchange is one of the earliest exchanges to unlock the value of market and asset data and use it to offset declining fortunes within exchange operations. As new equity exchanges have emerged to provide competition for its New York Stock Exchange (acquired in 2013), ICE has invested in selling data derived from its order flow and other proprietary data sets. These immensely valuable data sets within equity and fixed income have been a key driver to earnings as pricing in equity trading has declined. We firmly believe investors should increasingly view ICE as a vendor of proprietary data and less as an exchange. In recent years, close to 60% of operating income was generated by ICE's trading and clearing segment and 40% was attributable to information services. Over the next five years, we believe those roles will be reversed.It may be best to view ICE as a rollup of proprietary financial data sets and ancillary technologies. In addition, it would be hard to understate the importance of ICE's 2015 acquisition of Interactive Data, a leading provider of bond data. We anticipate ICE will continue investing in acquiring additional fixed-income data sets and products that are built on top of its immensely valuable databases. The company has been quick to understand that the raw inputs to trading and investing are no longer provided by humans, but by computers consuming immense quantities of data. We find ICE's decision to acquire complementary fixed-income data sets and ancillary products to be indicative of the company's strategy: expand beyond just providing bond price data, but also invest in the creation of additional products that are reliant on ICE's fixed-income data.However, in the medium term, we suspect a majority of organic growth will result from price increases rather than introducing new products. Given that today's most popular investment strategies are either passive, or becoming increasingly automated, customers are often reliant on ICE's equity and bond data. Though we anticipate management will deny the importance of increased pricing, raising prices will be the easiest avenue to pursue growth.