Key Takeaways From NASDAQ’s Earnings: Trading And Technology Divisions Limit Top Line Growth
Global exchange operator NASDAQ OMX Group (NASDAQ:NDAQ) announced its Q1 earnings on April 23, reporting a 4% year-on-year decline in consolidated revenues to $858 million. Revenues generated by NASDAQ’s largest revenue stream, Market Services, were down by almost 7% y-o-y to $539 million, while revenues generated by Technology Solutions were down by over 7% over the prior year period to $130 million. [1] The information services revenues were flat over the year-ago period at $125 million, while listing services only grew by over 10% to $64 million.
Although transaction-based revenues were down by over 7% to $539 million, net trading revenues – excluding cost of revenues – were about 10% lower than the comparable prior year period at $188 million. This was a result of relatively lower trade volumes for both equity and derivatives in the March quarter.
We have a $45 price estimate for NASDAQ OMX’s stock, which is slightly lower than the current market price.
See our full analysis for NASDAQ OMX
Technology Solutions And Trading Revenues Decline
NASDAQ’s cash equity trading volumes in the U.S. through Q1 were about 5% lower than the comparable prior year period at a total of 83 billion shared traded through the quarter. However, the implied revenue generated per 1,000 shares was slightly higher than the year-ago period at $4.03, due to which cash equity trading revenues were only by 1% lower than Q1’14 revenues at $339 million for the March quarter. We currently forecast revenues generated by NASDAQ’s U.S. equity trading to be about 2% higher than 2014 at about $1.35 billion due to a nearly 6-7% rise in trade volumes for the full year.
Similarly, equity derivatives trading on NASDAQ’s platform in the U.S. in Q1’15 were about 6% lower than the comparable prior year period at 251 million contracts traded through the quarter. Trading activity was also sequentially lower than the 274 million contracts traded in Q4’14. [2] Contrary to U.S. volumes, European derivatives trading volumes were both sequentially (+8%) and annually (+7%) higher at 25.4 million contracts traded in the March quarter. As a result, the consolidated revenues generated by derivatives trading were down by over 15% y-o-y to $116 million.
NASDAQ’s corporate solutions revenues in 2014 rose by over 36% to $314 million for the full year. However, Q3 and Q4 revenues were about 5-6% lower than the previous year quarters at $75 million and $78 million, respectively. The company attributed this to the extension of certain subsidies to Reuters’ customers. Keeping up the trend observed in Q3 and Q4, corporate solutions revenues were 8% lower than the prior year period at $75 million. However, the company expects its new IR NexGen platform to gain traction among customers in the IR space in the coming quarters. The company is planning to launch the first version of the desktop platform by soon.
Market Technology revenues declined by over 5% y-o-y to $55 million in the March quarter, which the company primarily attributed to a negative foreign exchange impact of about $3 million. However, the operating margin in this division rose to 11% from 9% in the prior year period. The company remains optimistic about its technology division and expects demand to pick up in the coming quarters.
Non-Trading Divisions Barely Make Up
Information services includes revenues from index licensing, servicing and market data products in the U.S. and Europe. The company’s index licensing and services business has grown at a CAGR of over 17% in the last five years. Keeping up the trend, index licensing at services revenues were up by about 9% y-o-y to $25 million. This division is likely to be boosted in the long-term due to the $225 million addition of Dorsey Wright’s indexing business in January this year, which added about $4 million to revenues.
NASDAQ OMX’s market data division’s revenues stayed flat over the year-ago period at $100. Revenues were up by about 4% y-o-y to $384 million in 2014 due to customer demand for data products, higher audit collections and slight price hikes. However, European market data revenues stayed flat over the prior year period at $60 million.
NASDAQ’s listing services business continued to perform well. Listing services revenues were up by over 10% to $64 million in the March quarter. The company had a 61% market share in IPOs in 2014, with a record year for number of listings. The company has kept up the momentum in this division with even a higher (yet unspecified) success rate in terms of gaining new listings.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research
- NASDAQ OMX Q1 2015 Earnings Call Transcript, Seeking Alpha, April 2015 [↩]
- NASDAQ OMX Monthly Supplemental Information, NASDAQ Press Release, April 2015 [↩]