Record Quarter at FLOW! 🚀
Flow Traders just released a record quarter and the stock rises +10%!
Despite being cautious with statements regarding quarterly performances, I’ve mentioned in recent weeks that I was rather optimistic about FLOW’s next results. But this was also a crucial quarter—volatility was higher than in previous ones, and FLOW needed to prove it could leverage that volatility to justify the investment thesis. And… well, they did!
Flow Traders
An Overview of the numbers:
Total income: €159 million (+114% YoY vs. Q4 2023)
Net profit: €63.2 million vs. €6.4 million in Q4 2023 (+888% YoY)
Fully diluted EPS: €1.42 vs. €0.14 in Q4 2023
EBITDA: €82.1 million vs. €11.8 million in Q4 2023
EBITDA Margin: 52% vs. 16% in Q4 2023
Net Trading income: €153.8 million, of which €72.7 million came from other income
Yes… the YoY comparison was relatively easy to beat, but this was still FLOW’s second-best fiscal year result ever, only outperformed by the 2020 COVID outlier.
In my last EPS estimate, I took a very conservative approach, assuming a result of just €0.35—essentially the same as last year. Instead, we saw an 888% increase 😉. Of course, I knew the US election could trigger volatility, so €0.35 was likely far too low. However, many believed the FLOW thesis was broken, and I wanted to highlight how attractively FLOW was valued, even under low earnings assumptions.
Now, they’ve delivered a fully diluted EPS of €3.56, instead of the €2.58 I had estimated—a phenomenal result (funny enough, the US election didn’t play a big part at all).
Market Context & Volatility Impact
Here’s a comparison between the VIX chart from my last quarterly update and today’s.
As you can see, there was another significant spike in December, triggered by the central bank announcing that interest rates would likely be lowered just twice in 2025.
To me, this event beautifully highlighted the asymmetry FLOW offers. Valued at a P/E of just 8 (based on the previous low estimates), the downside risk was very limited, while any spike in volatility had the potential to generate a quarter like this.
However, as we’ll see in the details, US factors weren’t as relevant for FLOW, which I actually view as a positive.
With that, let’s look at the details:
Regional Performance
Looking at the numbers, FLOW’s market share still appears to be declining based on ETP value traded. However, this is a result of FLOW strategically reallocating its trading capital to maximize returns. Since their capital is limited, they must shift it to where the best opportunities arise, which may temporarily affect market share.
As long as returns validate this approach, I see no issue with it. While growing trading capital is the long-term goal, optimizing its use should be the priority.
Asia:
FLOW achieved its best-ever result in Asia, which isn’t too surprising given its relatively short time in the region. Still, growth rates are highly promising, reflecting the opportunities created by recent stimulus measures we’ve covered in past articles.
Americas:
The US market wasn’t a primary focus this quarter. As I mentioned earlier, there were brief periods of heightened volatility, such as around the election, but after Trump won, volatility quickly declined.
Europe:
Still FLOW’s largest market. Interestingly, Europe also accounted for most of FLOW’s digital asset trading, as can be seen later.
Fixed Income & Crypto Market Dynamics
Fixed income: No major changes.
US investment-grade and high-yield bond volumes increased YoY but declined QoQ.
Crypto market: Continued strong growth in both trading volume and ETP value traded.
Trading volume doubled QoQ and tripled YoY.
Global ETP value traded doubled QoQ and increased tenfold (!) YoY.
However, volatility in crypto markets has remained relatively low. Historically, a market crash tends to offer a better opportunity for FLOW than simply higher trading volumes with low volatility.
That said, 2024 marks the first year where the FICC segment has overtaken the Equity segment.
Margins & Cost Management
EBITDA margins have continued to recover in recent quarters, thanks to high operating leverage. Fixed operating expenses grew by just 3% YoY.
However, management provided 2025 guidance for €190-210 million in fixed operating expenses, citing technology investments and strategic hires. If expenses reach the upper range, this could impact short-term results.
Since it's unclear how quickly these investments will translate into financial benefits, I’ll be monitoring this closely.
Trading Capital Expansion Plan
In Q2, Flow canceled the dividend and took a $25 million loan to focus more on capital expansion and take advantage of the high returns on trading capital. The market didn’t like it at all. I thought it was a good idea.
Since then, the stock is up 80%—so I think the market likes the idea now, too (sounds like I always know everything… trust me, I rarely do😅).
Through this measure, FLOW’s trading capital has now reached an all-time high of €768 million.
Be aware: Due to the rapid growth in trading capital, FLOW has changed how it calculates return on capital. Instead of total capital, they now use return on average trading capital based on the last two years.
Earnings Call – Key Q&A Insights
Further expansion of trading capital (also through debt)?
Yes, as long as attractive returns can be achieved. FLOW achieved 69% returns on trading capital in Q4, and with €200 million additional capital, the case for further expansion is strong.
Threat of losing market share to larger players (Jane Street, etc.)?
Market share isn’t the priority. With more capital, FLOW can compete better against bigger players.
Conclusion
Fantastic quarter that reaffirmed the FLOW investment thesis and validated the company's recent decisions. Despite the stock rising 10% today, FLOW now trades even lower (P/E of 7!) due to the strong results.
FLOW is growing, delivering near-70% returns on trading capital, and executing its strategy effectively.
Of course, I stay invested!
I have some additional thoughts on FLOW’s investment case and my future strategy regarding the stock, though.
I’ll discuss that in the Circle Community (for Paid Subs) once it’s live. We’re working on it in the background, and I’ll soon share an update!
For everyone who doesn’t know what I’m talking about:
Next up: Alibaba & Liberty earnings updates—stay tuned!
Until then, have a great day!
Daniel