Shares of FXCM closed higher by 5% yesterday to close at 9.49 after the forex broker beat analyst expectations in its Q3 earnings report and posted EPS of $0.17 versus forecasts of $0.15. Highlights of the quarter included a 25% increase from Q2 levels, even though overall volumes for the quarter were lower. Revenues were boosted by a $99 per million of retail volume traded as compared to $90 in Q2, along with recent purchase Lucid Markets contributing an entire quarter of revenues.
On the conference call, CEO Drew Niv and CFO Robert Lande were upbeat in their presentation and continued as such during the Q&A session. Some of the areas discussed during the call:
Lucid Markets: Lucid Markets was the most touched piece of the Q&A with analysts asking about the recent investigation of Thomson Reuters into Lucid’s trading activity on its ECN trading platform. According to CEO Drew Niv, Lucid was granted by Thomson Reuters multiple connections to the ECN even though it was unusual. He also added that Lucid continues to be a customer of Thomson’s as proof that there was no contractual wrong doing.
White Labels: FXCM wouldn’t comment on the performance metrics of its white label partnerships. They explained that their white labels are strategic in nature and help FXCM compete in areas where they aren’t as competitive. In this regard, the Barclays Stockbrokers deal was highlighted as allowing them to have a larger presence in the UK by leveraging their platform through the Stockbrokers brand. Overall, CEO Drew Niv explained that white label partnerships with established financial firms take time to monetize and are a several year process, with their success is based on whether the partner does its job in promoting the FX product.
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Buybacks: For the quarter, FXCM stated that it would reinstate its share buyback program. According to CFO Robert Lande, the company has authorized $51.5 million for this initiative which as of yet hasn’t begun. CEO Drew Niv added that in the past, FXCM had halted its buyback program as it was worried that US regulators would increase capital requirements, but that they are now 50% sure this won’t occur, or at least won’t be substantial.
Retail Revenues: When asked how FXCM achieved a $99 per million traded versus $90 in Q2, CFO Robert Lande explained that it was the combination of their clients trading more forex crosses with wider spreads along with customers with discounted spreads making up a lower portion of overall activity. Based on the changing factors each month, Lande added that FXCM has a $90-$100 revenue target but they can’t predict where the final number will fall every quarter.
Institutional: In response to falling volumes, CEO Drew Niv stated that FXCM was disappointed with its legacy institutional unit, and they were surprised how much their volumes would be affected by deleveraging and declining volatility. However, they were excited about the unit’s new FastMatch trading platform. They currently have a few dozen customers connected to the platform and expect that it will be a “big player” for FXCM in a year from now. As for Lucid Markets, the market maker continues to act as a standalone segment and their pricing hasn’t yet been connected to any of FXCM’s clients.
Low Spread Dealing Desk Offering: FXCM believes that their low spreads will make them better competitors in the small client market. Specifically with clients more interested in safety of funds, and having a widely known name in the industry will allow FXCM to gain a larger portion of this market.
FXCM Q3 Earnings Report Slide Deck[scribd id=112660550 key=key-7kg02ffzo77g5khiof3 mode=scroll]