Nasdaq OMX Q3 Earnings: What We’re Watching

+7.12%
Upside
63.10
Market
67.60
Trefis
NDAQ: Nasdaq logo
NDAQ
Nasdaq

A strong performance in non-transaction based businesses has helped Nasdaq OMX (NASDAQ:NDAQ) navigate the market uncertainty and tough macro-economic conditions which have dampened investor confidence so far this year. The exchange is scheduled to report earnings for the third quarter of 2012 on Wednesday. Despite a 6% year-on-year fall in transaction based revenues earned through the NASDAQ stock market, the U.S. futures and options markets and the Nordic and Baltic exchanges, the company’s operating income in the second quarter of 2012 was up 11% from the figure reported in 2011 at $175 million. This growth can be attributed to a 4% annual increase in non-transaction based revenues which include access and brokerage services, market data and market technology that the company provides to other exchanges around the world.

The company’s efforts to diversify operations hold the key to our price estimate of $29 on Nasdaq OMX’s stock, which is at a premium of 20% to the current market price. Market data and access services account for 22% and 15% of our price estimate, respectively, higher than listing services and equity trading services that NASDAQ is more famous for.

See our full analysis for Nasdaq OMX| NYSE Euronext|CME Group

Relevant Articles
  1. Nasdaq Stock Likely To Edge Past The Street Expectations In Q4
  2. What To Expect From NASDAQ Stock?
  3. What To Expect From Nasdaq Stock In Q3?
  4. Is Nasdaq Stock Attractive At The Current Levels?
  5. What To Expect From Nasdaq Stock Post Its Stock Split?
  6. NASDAQ Stock Gained 9% In One Week, What’s Next?

Nasdaq provides market data to institutional investor clients as well as to news and information channels, and the revenues earned from this stream account for just 10% of the company’s total revenues. But due to high operating margins, the segment is quite profitable for the exchange accounting for 20% of the EBITDA in 2011. Nasdaq acquired RapiData LLC in Dcember 2011, a provider of economic news to financial institutions and trading firms. This acquisition coupled with higher demand for data products and audit collections as investors tried to keep pace with the volatile markets in the second quarter of 2012 led to an 18% year-on-year increase in U.S. market data products. We expect Nasdaq to maintain the momentum it has built with a steady increase in U.S. market data revenues driven by higher demand for information as technology evolves.

Core Business Still Down

Turning to core trading business, Nasdaq recently reported volumes and revenue capture for the first nine months of 2012. [1] The U.S. matched equity volume remained suppressed in September, down 38% from last year and 5% from August. This is hardly a surprise given the slow recovery of the economy which has been exacerbated by market uncertainty prevalent in the U.S. just before the general elections. Nasdaq maintained a market share of around 20% in the third quarter with a revenue capture of $0.38 per 1,000 shares. We expect trade volumes to remain low for the next few years, with an eventual long-term recovery as global macro-economic conditions become more conducive to trading.

 

U.S. equity options volume provided some signs of optimism as the figure increased 13% over September to match the figure reported for the same month last year. Nasdaq maintained a market share of 27.3% with a revenue capture of $0.18 per contract. On the European front, options and futures volume on the company’s Nordic and Baltic exchanges has also suffered following the prolonged debt crisis which has plagued Europe. Volume for the third quarter of 2012 was down 23% from the same period last year.

Nasdaq is setting up a derivatives trading platform in London, targeting 10% of the market share that is currently dominated by NYSE Euronext’s (NYSE:NYX) Liffe exchange and Deutsche Boerse. [2] We forecast a steady increase in daily volume of derivative contracts in Europe, fueled by the new exchange and a gradual market recovery.

Submit a Post at Trefis Powered by Data and Interactive Charts | Understand What Drives a Stock at Trefis

Notes:
  1. NASDAQ OMX 2012/2011 Volumes and Revenue Capture*. Nasdaq Investor Relations []
  2. Nasdaq’s U.K. Derivatives Platform Seeks 10% Market Share, Bloomberg Businessweek, October 11th, 2012 []