NYSE Euronext Continues to Perform Strongly Despite Failed Merger

NYSE Euronext (NYSE:NYX) reported a net income of $110 million for the quarter ended December 31, 2011 compared to the net income of $131 million in the same quarter previous year. ^[1] NYSE incurred a $46 million one-time merger expense and exit cost related to the abandoned $9 billion merger deal with Deutsche Boerse in the fourth quarter which pressured the company’s earnings. Earlier this month the European Union blocked the merger on antitrust grounds since the combined entity would have had a share of more than 90% of the European exchange-traded derivatives market. NYSE remains the largest stock exchange in the world and competes with Nasdaq OMX (NASDAQ:NDAQ), CME Group (NASDAQ:CME) and IntercontinentalExchange (NYSE:ICE).

Our updated price estimate for NYSE Euronext’s stock is $34, about 15% above the current market price.

See our full analysis of the NYSE Euronext stock here

Q4 2011 was a period of low growth and low market activity driven by uncertainty and volatile market conditions. NYSE’s U.S. listed cash equities volume decreased 18% in the fourth quarter from strong third quarter levels. However, NYSE’s market share of U.S. listed cash trading declined only slightly in the fourth quarter, less than what we had anticipated due to the entry of new players in the market. NYSE’s European cash products trading volume continue to remain strong and increased 13% in Q4 2011 from the fourth quarter 2010 which helped to counter the declining volumes in the U.S.. We have revised upwards our forecast of NYSE’s European trading volume and its market share of the U.S. cash equities trading which now reflects the company’s growing momentum in the Europe and stabilizing market share in the U.S.

In 2011, NYSE saw 7% year-over-year increase in its global derivatives trading volume driven mainly by 15% increase in its U.S. equity options volume which was slightly offset by a 3% decline in European derivatives trading volume. Derivatives continues to be a major area of focus for future growth and NYSE is looking to build its European clearing capabilities and add new products and services in its offerings in order to boost its transaction revenues. We have adjusted our forecast of NYSE’s U.S. and European derivatives trading volume to reflect continued high growth rate in the U.S. and slower than anticipated growth in the European market.

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1. NYSE Euronext Announces Fourth Quarter and Full-Year 2011 Financial Results, Company Press Release [↩]