prev

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher

Takeaway: U.S. cash equity volume is vaulting higher by +18% Y/Y with U.S. equity options almost keeping pace at +10% Y/Y growth.

Weekly Activity Wrap Up:  U.S. cash equity volume is putting up the largest year-over-year growth, running higher by +18% Y/Y thus far in the new 3rd quarter. U.S. equity options activity is not far behind at +10% Y/Y, with U.S. futures trading currently averaging 16.9 million contracts quarter-to-date, which is down -7% year-over-year. 

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon1

 

U.S. Cash Equity Detail: U.S. cash equity trading finished the week at 7.2 billion shares traded which is blending to a 6.7 billion daily average thus far for the 3rd quarter of 2015. This is +18% year-over-year growth for U.S. stock activity. The market share battle for volume is mixed, with the New York Stock Exchange/ICE standing pat at 24% market share. NASDAQ's weekly market share rose to 19% this week. However, its share of third quarter volume remains at 18%, 200 bps lower than its 20% share in 3Q14, a -6% decline.

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon2

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon3

 

U.S. Options Detail: U.S. options activity continues to churn higher with 17.3 million contracts traded this week which is also blending 3Q15 activity to 17.3 million contracts per day, up +10% year-over-year. The market share battle amongst venues continues to be one of losses at both the NYSE/ICE and NASDAQ. NYSE has lost 400 basis points of share year-over-year settling at just 18% of options trading currently. NASDAQ has also shed 400 basis points of share, good for a -15% loss from last year as ISE/Deutsche Boerse and BATS mop up volume and share.

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon4

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon5

 

U.S. Futures Detail: CME Group volume has been relatively low the last couple of weeks. In the most recent 5-day period ending July 30th, activity levels were 11.9 million contracts at the big futures exchange blending 3Q15 volume to a 12.7 million average level, a -6% year-over-year decline. CME open interest, the most important beacon of forward activity, however continues in strong fashion with 100.6 million contracts pending, good for +19% year-over-year growth. Activity levels on the futures side at ICE hit 3.8 million contracts this week, with 3Q15 blending to a 4.2 million daily average. That amounts to a -8% year-over-year decline. ICE open interest this week tallied 72.4 million contracts, continuing a -4% year-over-year contraction.

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon6

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon7

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon8

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon9

 

Monthly Historical View:  Monthly activity levels give a broader perspective of exchange based trends. Largely, volatility levels are just starting to rise after drastic compression this cycle. Thus as the VIX, MOVE, and FX Vol starts to normalize, we expect all marketplaces to experience higher activity levels.

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon10

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon11

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon12

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon13

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon14

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon15

 

Sector Revenue Exposure: The exchange sector has broadly diversified its revenue exposure over 10 years as public entities with varying top line sensitivity to the enclosed trading volume data. The table below highlights how trading volumes will flow through the various operating models at NASDAQ, CME Group, ICE, and Virtu:

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon19 3

 

 We recently presented our investment thesis on the Exchanges. To summarize,

  • Long CME:  Financially oriented CME Group (CME) is enjoying a long awaited boom in activity, as trader counts and open interest in Treasuries, Eurodollars, and FX products are swelling. The decade long concentration on trading energy and commodities is over and with steeply shaped forward curves and more profitable opportunities, financial products are seeing rapid adoption. 
  • Short ICE: We see collateral damage from the ongoing rapid price decline in energy and commodity markets. As a result, these important products at ICE will be less active than the Street expects, as commercial hedging and speculative energy trading dries up.

We think CME has $5 per share in earnings power in the out year and the stock will revisit near $140. As outlined in our presentation deck and replay below, a CME long position can also be paired with a short ICE position, with favorable fundamental exposures on each side of the trade.

 

Separately, recent IPO Virtu (VIRT) is being valued incorrectly by the market. Our main qualm is that the company takes intraday prop risk, but has no tangible equity capital to cover any potential trading losses. Shares of VIRT are currently on our Best Ideas list as a short with a fair value in the mid-teens (30-40% downside).

 

Hedgeye Exchange Black Book Replay HERE

Hedgeye Exchanges Black Book Materials HERE

 

HEDGEYE Exchange Tracker | Getting Cashed Up on Equities - Stock Volume Trending Higher - XMon20

 

 Please let us know of any questions,

 

Jonathan Casteleyn, CFA, CMT 

  

  

 

 Joshua Steiner, CFA

 

 

 

 



RTA Live: July 31, 2015

 

 


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.


LNKD: Crying Wolf...Again (2Q15)

Takeaway: Guidance implies that Brand Revenue goes away overnight....Mgmt may want some breathing room, but it can’t cry wolf two quarters in a row

KEY POINTS

  1. 2Q15 = INORGANIC CLOUDS: LNKD handily beat 2Q15 estimates, which were depressed by its low-balled 2Q15 guidance.  But what looked like a massive beat was partly fueled by inorganic revenues that mgmt didn’t properly guide to ($18M vs. $3M guidance), with $15M of its $32M revenue beat coming from Lynda.  Still, organic trends remain solid, with Talent Solutions recovering from the account transition, and interestingly, much of its upside surprise coming from Marketing Solutions (next point).  
  2. CRYING WOLF…AGAIN: We were concerned that LNKD may guide light for 3Q, but mgmt took it one step further.  LNKD raised 2015 guidance, but cut its organic guidance by ~$35M, citing pressure in its display business (Marketing Solutions).  However, we estimate that display contributed roughly $48M in 1H15 revenue (based on mgmt commentary).  That said, guidance now implies that display basically goes to $0 overnight, which obviously doesn't make sense, especially since display was flat q/q.  In short, LNKD just wanted display revenues out of its guidance.
  3. BUT NOT AN EXCUSE:  We do appreciate that LNKD is concerned with managing expectations, but it can’t cry wolf two quarters in a row.  We can’t help but wonder if something else is going on, or LNKD is just being overly cautious.  But either way, situations like this prevent the mob from chasing the print the next time around, or worse, trains the sell-side to take guidance less seriously.  LNKD remains a Best Ideas Long, but we're not pounding the table since we're not sure what mgmt will do the next time it sees its shadow.    

 

2Q15 = INORGANIC CLOUDS

LNKD handily beat 2Q15 estimates; it was actually its biggest beat since 2012.  But much of that came off of depressed expectations off its low-balled 2Q15 guidance.  Further, much of that beat was partly fueled by inorganic revenues that mgmt didn’t properly guide to ($18M vs. $3M guidance), with $15M of its $32M revenue beat coming from Lynda.  

 

There was no real cause for concern in its organic trends.  Our long thesis centered on its Talent Solutions segment, which came in above consensus estimates.  Net LCS customer growth accelerated off a weak 1Q15 print, which suggests that the 1Q15 investment in its salesforce is starting to pay off, or at a minimum, suggests the account transition was a transitory issue.  

 

The one blemish was the deceleration in its Talent Solution ARPA, which is what we're keying in on since this is where both the bulk of its TAM and current opportunity exists.  ARPA diverged from our tracker in 2Q15, which we don't want to overreact to since it's just one quarter, but obviously something to monitor. 

 

LNKD: Crying Wolf...Again (2Q15) - LNKD   Net LCS 2Q15

LNKD: Crying Wolf...Again (2Q15) - LNKD   ARPA vs. JOLTS 2Q15

 

CRYING WOLF…AGAIN

We were concerned that LNKD may guide light for 3Q, but mgmt took it one step further.  LNKD raised 2015 guidance by $40M, but actually cut its organic guidance by $35M after considering the cumulative $75M in tailwinds from its 2Q15 guidance beat and incremental revenue from its Lynda acquistion.  

 

However, the math doesn't make sense.  The $35M organic cut was due to incremental pressure around display advertising.  But according to mgmt commentary, we estimate that display represented roughly $48M in 1H15 revenue.  By cutting guidance by $35M against $48M in 1H revenue, mgmt is suggesting that display advertising will evaporate in the back-half, which is odd since management commentary also suggests that display remained flat q/q in 2Q15 .  More likely than not, mgmt just wants display revenues out of its guidance.

 

LNKD: Crying Wolf...Again (2Q15) - LNKD   2015 Guidance 

 

BUT NOT AN EXCUSE

We do appreciate that LNKD is concerned with managing expectations, but it can’t cry wolf two quarters in a row.  We can’t help but wonder if something else is going on, or LNKD is just being overly cautious. 

 

But either way, situations like this prevent the mob from chasing the print the next time around, or worse, trains the sell-side to take guidance that less seriously.  LNKD remains a Best Ideas Long, but we're not pounding the table since we're not sure what mgmt will do the next time it sees its shadow.    

 

 

Let us know if you have any questions or would like to discuss further.  See note below for incremental detail and analysis on our long thesis thesis.  

 

Hesham Shaaban, CFA

@HedgeyeInternet 

 

 

LNKD: New Best Idea (Long)

07/14/15 08:00 AM EDT 

[click here]


The Macro Show Replay | July 31, 2015

 


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

next