NASDAQ Pre-Earnings: Non-Transaction Based Revenues In Focus

by Trefis Team
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Trefis
NDAQ
Nasdaq OMX Group
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    Quick Take 

  • NASDAQ will release its earnings on April 24. The company’s transaction-based revenues are expected to remains under pressure as trading volumes remain low. However, the firm’s diversified portfolios of businesses provides it the strength to wade through this tough macroeconomic environment.
  • In Q4 2012, only 30% of NASDAQ’s net exchange revenues (revenues less transaction rebates, brokerage, clearance and exchange fees) came from transaction-based businesses

NASDAQ OMX (NASDAQ:NDAQ) is scheduled to release its results for the first quarter of 2013 on April 24. The company is one of the more diversified exchange operators in the U.S., and only 30% of its net exchange revenues (revenues less transaction rebates, brokerage, clearance and exchange fees) came from transaction-based businesses in the previous quarter. [1] Given this trend, we expect the company to wade through the current period of tepid trading activity relatively easily.

Our current price estimate for the firm is $30.36 per share. We will update this price once the company releases its Q1 data on April 24.

See our full analysis for NASDAQ OMX

Trading Activity Remains Weak

U.S. cash equity trading and European cash and options trading together account for about 20% of the value in NASDAQ’s stock, according to our estimates. However, unfortunately, volumes have remained weak for the past several quarters and are showing no significant signs of improvement. NASDAQ’s monthly volume data suggests that NASDAQ’s U.S. matched equity volume for March 2013 was down almost 30% from the year ago period.

Non Transaction-Based Businesses Driving Growth

On the other hand, the company’s non-transaction-based businesses continue to do well. Last quarter, the company reported an 11% year-on-year increase in its issuer services revenues, helped largely by a 55% increase in corporate solutions revenue. This growth was driven by the acquisition of BWise in May 2012, and Glide Technologies in October 2011. The corporate solutions division also reported double-digit growth in GlobeNewswire, Directors Desk and Surveillance businesses.

We expect these businesses to continue doing well because the firm remains committed to further diversify and grow its non-transaction-based businesses.

Expecting More Details On New Initiatives

As mentioned earlier, NASDAQ’s diverse portfolio of businesses provides it the strength to easily wade through the current tepid trading volume environment. Perhaps, this is the reason why the company continues to aggressively expand into newer niches. Over the last few months the company has made some important announcements regarding the launch or acquisition of new businesses, and we expect the management to throw some light on these developments in this earnings call. Here are the specific moves we expect to hear about:

1)      The progress in the acquisition of Thomson Reuters’ investor relations, public relations and multimedia solutions businesses (read related article here)

2)      NASDAQ Private Markets (read related article here)

3)      New Platform for trading ETFs (read related article here)

4)      The acquisition of eSpeed (read related article here and here)

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Notes:
  1. Press release, NASDAQ OMX, January 31, 2013 []
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