Nasdaq OMX’s (NASDAQ:NDAQ) earnings report for the second quarter of 2012 indicated positive signs for the exchange despite weak trading volumes and the Facebook (NASDAQ:FB) IPO fiasco that marred the company’s reputation during the period.  Diversification was the key to Nasdaq’s performance as non-transaction based businesses observed a 4% year-on-year growth in revenues, reaching $291 million. This helped offset the $5 million decline in revenues reported through transaction-based operations such as equity and options trading in U.S. and Europe. The company reported total revenues of $413 million, consistent with the figure of $415 million observed in the second quarter of 2011.
Core Business Back On Track
- US Equity Options Volumes Surge In July For NASDAQ
- NASDAQ’s Cash Equity Volumes Plunge In July
- NASDAQ’s Fixed Income Volumes Decline In July
- Acquisitions And Operations Drive NASDAQ’s Second Quarter Revenue
- NASDAQ’s Fixed Income Volumes Continue to Decline In June
- NASDAQ Earnings Preview: Transaction-Based Revenues Likely To Be Affected By Decreasing Market Share
Nasdaq’s listing business is the most influential component of operations, accounting for 45% of the company’s stock value, according to our analysis. The exchange has long maintained its image as the preferred destination for software companies; over 70% of technical companies in the U.S. are currently listed on Nasdaq. Software malfunctions and glitches during the much anticipated and publicized Facebook IPO in May tarnished the company’s brand image as investors suffered huge losses and companies such as Palo Alto Networks reconsidered their positions on going public.
The damage seems to be temporary as Nasdaq attracted 31 new listings in the second quarter despite the slowdown in IPOs. These listings included 15 IPOs and a record number of switches from other exchanges. Kraft Foods’ (NYSE:KFT) joined Dell (NASDAQ:DELL) as some of the largest companies making the switch from competitors NYSE Euronext (NYSE:NYX). (See After Facebook’s Flop, Nasdaq Gets Some Love From Kraft Foods) The Jumpstart Our Business Startups (JOBS) Act, passed by the U.S. Government in April, also provides some optimism for the exchange as it eases regulations imposed on start-ups. Of the 79 emerging growth companies that have filed under this provision so far, 50 have chosen Nasdaq as their destination.
Nasdaq won 8 of the 11 IPOs filed in the U.S. in July and is also expected to pick up 5 out of 8 companies planning to go public within the next week. The company has recovered well since the Facebook saga, and we expect the number of U.S. listings on Nasdaq to rise steadily through our forecast period.
Access and brokerage services observed the highest growth among Nasdaq’s businesses as revenues increased 12% year-on-year to $66 million. Innovations such as the Carteret Datacenter , 40G connectivity and the Super Cab offering are the main drivers behind the observed growth.
Market technology, which accounts for 23% of our price estimate, reported $44 million in revenues. The company reported an order intake of $132 million for the business during the first half of 2012 and is well on track to surpass the $134 million reported during the whole of 2011. The Swiss Exchange and the Kuwait Exchange went live with Nasdaq’s technology during the last three months. Exchanges in Hong Kong, Japan, Abu Dhabi and Egypt extended contracts with Nasdaq, solidifying its position as a reliable technology and services provider. We forecast steady growth in market technology and other revenues through the next few years.
Our price estimate of $27 on Nasdaq OMX’s stock is about 20% above the current market price. You can gauge the effect of a change in the forecast on the company’s stock price by modifying the charts above.Notes:
- Nasdaq OMX Group Management Discusses Q2 2012 Results – Earnings Call Transcript, Seeking Alpha, 25th July, 2012 [↩]