Weak Volumes Sink NYSE’s Q3 Revenues

by Trefis Team
NYSE Euronext
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NYSE Euronext’s (NYSE:NYX) earnings for the third quarter of 2012 were hit hard by sluggish trading volumes. Total revenues were down 28% from the prior year whereas operating income fell by a whopping 41%. Volume-based revenues declined by 35% year-on-year as average daily volume (ADV) fell across all lines of products.

Foreign exchange had an impact on earnings as well as 43% of the company’s net revenues in the September quarter were in euros or pounds. The U.S. dollar strengthened against these two currencies, leading to a negative impact of $20 million. Total debt at the end of September was $2.5 billion, higher than $2.1 billion at the end of the last calendar year. We expect earnings to remain suppressed in the near term with a long-term recovery as global economic conditions improve.

Our $27 valuation of NYSE Euronext’s stock is in-line with the current market price.

See our full analysis of the NYSE Euronext stock here

Listings Remain Strong

Listings was one of the revenue streams not influenced by morose macro-economic conditions. NYSE reported 57 IPOs in the U.S. market in the last three months accounting for 57% of all IPOs in the U.S. during the period. In addition, around 50% of all technology IPOs, including ServiceNow and Palo Alto, were on NYSE. This is quite an important figure as rival Nasdaq OMX (NASDAQ:NDAQ) has traditionally been the favored destination for technology companies. Around 70% of such companies are currently on Nasdaq, however, this trend might just be influenced by the Facebook (NASDAQ:FB) fiasco earlier this year. We expect a steady rise in the number of U.S. listings on NYSE, which currently stand at 2,951.

Cash And Derivatives Down

Revenues from transaction and clearing fees fell from $904 million in the third quarter of 2011 to $570 million. The fall can be attributed to a market-wide decline in trading volumes. The U.S. cash ADV fell by 39% while its European counterpart decreased by 31% over the prior year. Nasdaq also reported a decline of 24% in transaction volumes for the September quarter, reflecting market conditions which are not conducive to trading.

In addition to the market decline, NYSE’s tape A matched market share declined from 36% in 2011 to 32%. Increased competition from relatively new exchanges like BATS contributed to this decline along with an increase in off-exchange trading. Trading outside of traditional exchanges has gained popularity, particularly among institutional traders. The Trade Reporting Facility (TRF) has reported that off-exchange trading accounts for 32% of average daily volume of trades in the U.S. – this figure is up from 28% in the third quarter of 2011. NYSE will look to attract some of these trades through its recently launched Retail Liquidity Provider program (RLP), which  currently trades 6 million shares a day. Read our article NYSE Is Worth $34 With Alternative Retail Equity Market Rollout for more details.

We expect a slight increase in U.S. cash products handled by NYSE, influenced by the RLP and gradually improving global economic conditions.

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