CBOE just reported 29% revenue growth and barely anyone is talking about it. Here’s what the fundamentals show.

For context, Cboe Global Markets runs the exchanges where options, futures, and equities get traded. you've probably used their products without realizing it. The VIX index that everyone references when markets get volatile? Yea, that's Cboe.

here's what my screen showed:

ROIC: 58% (5yr average was 14.4%)

FCF margin: 56.8%

Gross margin: 43.4%

Net margin: 25.8%

Revenue CAGR 5yr: 37.8%

P/E: 29.4x

Fair value estimate: ~$322 (using 9% discount rate)

Current price: ~$338

so the business is basically a cash machine. 56.8% FCF margin means for every dollar of revenue, almost 57 cents turns into free cash flow. That's exceptional and not something you see very often.

the ROIC jump from 14.4% to 58% which is staggering. Some of that is almost certainly the 0DTE options explosion driving volumes through their platform without proportional cost increases. Index options average daily volume hit 6.1 million contracts in Q1, up 29% year over year. that's a structural tailwind not just a good quarter.

Oh and btw, they also just reported Q1 earnings last week and crushed it. Revenue up 29% year over year, EPS beat by about 10% and raised full year guidance from mid single digit to low double digit to mid teens growth. Also announced a 20% workforce reduction alongside divesting their Canadian and Australian units to focus on core businesses. stock jumped about 10% on the news.

at ~$338 my model puts it slightly above fair value at current prices, so not screaming cheap but tbh for a business with these FCF margins and ROIC, the premium might be justified depending on how you think about the 0DTE growth runway.

Some concerns I see:

– the S&P index options partnership is a concentration risk worth knowing about. A significant chunk of revenue depends on that relationship continuing. If that dynamic ever shifts it changes the thesis pretty materially.

– also the ROIC at 58% feels almost too good. trying to figure out how much of that is structural moat vs favorable cycle from elevated volatility and options volumes over the past few years. If VIX normalizes lower for a sustained period that could compress volumes and margins.

anyone here follow exchange operators closely? curious how you're thinking about the 0DTE tailwind and whether the volume growth is durable or mean-reverting.