KCG Holdings, Inc. :KCG-US: Earnings Analysis: Q4, 2016 By the Numbers : January 20, 2017

KCG Holdings, Inc. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of KCG Holdings, Inc. – Interactive Brokers Group, Inc. Class A (IBKR-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 580.54 million, Net Earnings of USD 196.19 million.
  • Gross margins widened from 59.80% to 80.38% compared to the same period last year, operating (EBITDA) margins now 57.30% from 13.92%.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 580.54 221.89 331.21 344.52 264.04
Revenue Growth (%YOY) 119.87 -42.77 21.01 -51.37 -27.15
Earnings (mil) 196.19 -11.21 33.55 37.17 -2.97
Earnings Growth (%YOY) 6703.57 -151.12 275.11 -85.09 -111.44
Net Margin (%) 33.79 -5.05 10.13 10.79 -1.13
EPS 2.47 -0.13 0.38 0.41 -0.03
Return on Equity (%) 56.12 -3.1 9.12 10.15 -0.81
Return on Assets (%) 12.06 -0.64 2 2.42 -0.18

Access our Ratings and Scores for KCG Holdings, Inc.

Market Share Versus Profits

Revenues History
Earnings History

KCG-US‘s change in revenue this period compared to the same period last year of 119.87% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that KCG-US is holding onto its market share. Also, for comparison purposes, revenues changed by 161.64% and earnings by 1,849.53% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 59.80% to 80.38% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 13.92% to 57.30% compared to the same period last year. For comparison, gross margins were 43.86% and EBITDA margins were -3.87% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 4.42% to 53.38% and (2) one-time items. The company’s pretax margins are now 53.38% compared to -1.69% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for KCG Holdings, Inc.

Company Profile

KCG Holdings, Inc. is an independent securities company, which offers investors a range of services designed to address trading needs across asset classes, product types and time zones. It operates its business through the following segments: Market Making, Global Execution Services and Corporate & Other. The Market Making segment principally consists of market making in global equities and listed domestic options. The Global Execution Services segment offers access via its electronic agency-based platforms to markets and self-directed trading in equities, options, fixed income, foreign exchange and futures. The Corporate & Other segment invests in strategic financial services-oriented opportunities, allocates, deploys and monitors all capital, and maintains corporate overhead expenses and all other income and expenses that are not attributable to the other segments. The Corporate & Other segment houses functions that support the company’s other segments such as self-clearing services, including stock lending activities. The company was founded in July 2013 and is headquartered in Jersey City, NJ.

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