Cboe's Record Q4: Is the Market's Skepticism Justified?

Cboe delivered a powerful finish to 2025. The company reported record net revenue of $671.1 million for the fourth quarter, a robust 28% year-over-year increase. Earnings were equally strong, with adjusted diluted EPS of $3.06, up 46% and beating analyst expectations. The numbers were a clear victory, capping a year of record growth across the board.

Yet the market's reaction was a classic case of "sell the news." Despite the beat, Cboe's stock fell 3.54% in pre-market trading on the day of the report. This disconnect points to a central question: Is the skepticism justified, or is the stellar performance already priced in?

The answer lies in the forward view. The company's 2026 guidance targets mid-single-digit organic revenue growth for its total business. That's a significant deceleration from the 28% surge seen in the final quarter. For a market that has been rewarded for hyper-growth, this shift in trajectory likely triggered a reassessment. The record numbers were the culmination of a strong year, but the guide suggests a more normalized pace ahead. The market's pre-market drop reflects a cautious recalibration of expectations.

Analyzing the Growth Drivers and Their Durability

The quality of Cboe's Q4 growth is what separates it from a simple cyclical pop. The expansion was broad-based, with double-digit increases across all business segments. This diversification is a positive sign for durability. The standout was the derivatives business, where revenue surged 38% year-over-year to $386 million, powered by record volumes in index options. A key driver was the surge in zero-day options, where ODTE SPX options grew 66% to 2.6 million contracts. This isn't just about more trading; it reflects a deeper, structural shift as both retail and institutional investors adopt shorter-dated strategies.

The real story, however, is the operating leverage embedded in this growth. While revenue climbed 28%, adjusted operating EBITDA grew 40% to $464.7 million, pushing margins to an impressive 69.2%. This expansion shows the business model is scaling efficiently. The company is converting top-line gains into bottom-line profits at a faster rate, a hallmark of a mature, capital-light exchange operator. This margin strength provides a cushion and funding for the company's strategic initiatives, like its planned event prediction markets launch in Q2 2026.

So, where does the skepticism come from? It centers on the forward guide. Management's target for mid-single-digit organic revenue growth in 2026 represents a clear deceleration from the 28% quarterly pace. The market is pricing for perfection and seeing a slowdown. Yet, the underlying story has more depth. The segment diversification and the powerful margin expansion suggest the growth engine is not just a one-quarter sprint. The focus on data and analytics, with its own mid-single-digit growth target, adds a more stable, recurring revenue stream.

The expectations gap is real. The market is reacting to the headline deceleration, but the quality of the growth-its breadth, its margin impact, and its foundation in secular trends like retail options adoption-implies a more resilient story than the guide alone suggests. The risk is that the market is discounting the durability of the current business model in favor of a simpler, linear growth narrative.

The Consensus View and Its Blind Spots

The market's negative reaction to Cboe's record quarter is a textbook case of expectations being priced for perfection. The stock's pre-market drop suggests investors had already baked in a continuation of the explosive 28% quarterly growth. With the company now guiding for a clear deceleration to mid-single-digit organic revenue growth in 2026, the narrative shifted from hyper-growth to normalization. This is the consensus view: the best is over, and the stock must now justify its valuation on a slower path. The skepticism is understandable, but it may be missing some key pieces of the puzzle.

One potential blind spot is the company's Data Vantage business. Management has set a separate growth target for this segment of 'mid to high single-digit' organic net revenue growth for 2026. This is notably higher than the overall mid-single-digit guide for the total business. The consensus may be underestimating the potential for this higher-growth segment to outperform and contribute disproportionately to the company's top-line trajectory. Data Vantage, which includes analytics and market data, represents a more stable, recurring revenue stream that could provide a cushion and even a tailwind if it hits the upper end of its range.

Another overlooked strength is the company's cost discipline. The Q4 results showed a powerful 6.1 percentage point expansion in adjusted operating margin to 67.1%. This operating leverage demonstrates an exceptional ability to manage expenses even as revenue surges. The 2026 adjusted operating expense guidance of $864 to $879 million implies tight control over the cost base. The market's focus on the headline revenue deceleration may be obscuring the fact that Cboe's profit engine is becoming more efficient. This margin expansion provides a critical buffer against any softness in trading volumes and funds the company's strategic bets.

The bottom line is a classic "priced-in" versus "what's missing" setup. The stock is likely priced for a smooth, linear slowdown from Q4's peak. The reality, however, may be more nuanced. If Data Vantage exceeds its guide and the company maintains its aggressive cost control, the actual 2026 performance could still surprise to the upside. The current skepticism assumes the guide is the ceiling, but the underlying business model-evidenced by its margin power and diversified growth drivers-suggests it has more room to maneuver than the consensus pricing implies.

Valuation and the Risk/Reward Asymmetry

The market's skepticism is now reflected in the stock price. With the shares trading around $269.29 after the report, the valuation appears to be pricing for a clean deceleration. The consensus view assumes the record 28% quarterly growth is unsustainable, and the company's guide for mid-single-digit total revenue growth in 2026 is the new baseline. This setup creates a clear risk/reward asymmetry: the downside from here may be limited by the company's strong fundamentals, while the upside hinges on the execution of its higher-growth segments and the durability of its core business.

The key risks are twofold. First, the sustainability of the derivatives volume boom. The surge in zero-day options, which grew 66% last quarter, is a powerful driver, but it is inherently tied to market volatility and investor sentiment. Any significant cooling in market turbulence could pressure that high-margin segment. Second, the company must deliver on its 2026 guidance. The tight operating expense target of $864 to $879 million implies significant cost discipline is required to maintain margins as revenue growth slows. Execution risk here is real.

Yet, the potential catalysts and blind spots tilt the scales. The most immediate catalyst is the performance of the Data Vantage business. Management has set a separate guide for this segment of 'mid to high single-digit' organic net revenue growth in 2026. If this unit outperforms and hits the upper end of its range, it could materially exceed the overall mid-single-digit total guide, providing a tangible upside surprise. This segment's stability and recurring nature are a key buffer.

Another catalyst to watch is any regulatory change impacting the options market. While not a near-term driver, the company's strategic focus on expanding its ODTE offerings suggests it is positioned to benefit from any policy shifts that further encourage options trading. The company's own expansion into areas like European clearing also represents long-term revenue diversification.

The bottom line is that the current price likely discounts a straightforward slowdown. The reality, however, is more nuanced. The company's powerful margin expansion-its adjusted operating margin hit 67.1% last quarter-provides a critical cushion. This efficiency means the business can absorb some softness and still generate strong cash flow. Combined with the diversified growth drivers and the potential for Data Vantage to exceed expectations, the risk/reward ratio looks more favorable than the market's initial reaction suggests. The stock may be priced for perfection, but the underlying business model has more resilience and upside potential than the guide alone implies.