Nasdaq OMX (NASDAQ:NDAQ) announced its quarterly results for the first quarter on Wednesday, with net exchange revenues of $411 million compared to $413 in the first quarter of 2011 while net income was $85 million.^[1] The company announced that cash equity trading and derivatives revenues were down $15 million, owing to a decline in trade volumes. Revenues from non-trading businesses such as access services, market data and market technology, however, showed an increase of $13 million, reflecting the company’s efforts to diversify its operations. Nasdaq OMX is a global exchange company that competes with CME Group (NASDAQ:CME) and NYSE Euronext (NYSE:NYX).

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First Quarterly Cash Dividend

Nasdaq also announced its first quarterly cash dividend of 13 cents per share, a 2% yield to be paid to shareholders, indicating strong cash flows. This announcement is in line with the capital return strategy adopted by the company as it continues to repurchase shares. Nasdaq has seen strong growth in its free cash flow over the last few years, which is due to sound acquisitions and investments. Nasdaq also announced its acquisition of NOS Clearing ASA, a Norway-based clearinghouse as it looks to expand in the commodities domain.

Low Trade Volumes in U.S

Nasdaq reported average daily volume of 6.83 billion shares in the first quarter in the U.S. cash equity markets, the lowest level observed since 2008. This is primarily due to uncertain market conditions prevalent in the U.S. A decrease of about $6 million was seen in the revenues generated through derivatives trading, but such a dip was expected as the U.S. equity trading and derivatives market had seen a period of exceptional growth in the first quarter of 2010. Nasdaq continues to maintain a leading market share in the derivatives market. U.S. derivatives trading accounts for 35% of our price estimate for Nasdaq.

Strong Performance by Non-Trading Business

Nasdaq has maintained a policy of expanding in non-transaction based businesses including access services, market data, broker services, issuer services and market technology. Each of these individual businesses showed positive growth with a combined revenue of $284 million. In particular, the corporate solutions business, which accounts for 7% of our price estimate for Nasdaq, saw revenue growth of 11%. The iPad application, Directors Desk, enjoyed massive success with over 4,000 users. The company has consistently tried to offer innovative services, a trend which continued with the launch of an INET-based index calculator.

Positive Signs for New Listings

Although the number of listed companies saw a decline due to mergers, acquisitions and the weak IPO market, Nasdaq retained a positive outlook, as it reported 46 new listings this quarter. The passing of the Jobs Act in April should allow new businesses to access more funds and potentially increase the number of listings. The company also continues to attract technology companies such as Blue Chip and Texas Instruments, among other companies switching from other exchanges. Facebook is expected to announce its IPO in May, which will further cement Nasdaq’s reputation amongst IT companies. According to company data, over 70% of U.S.-listed technology companies choose Nasdaq over other exchanges. U.S. listings currently account for 6% of our price estimate for Nasdaq.

Going forward, Nasdaq announced plans to cut $25 million in costs this year through technology and facility savings, as well as job cuts.

We have a price estimate of near $27.50 on Nasdaq OMX’s stock, about 10% above the current market price.

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