Bloomberg News

Nasdaq Earnings Fall as Revenue From Equity Trading Drops

October 24, 2012

Nasdaq OMX Group Inc.’s (NDAQ:US) quarterly earnings declined 15 percent from the year-earlier period as the second-largest U.S. equity exchange operator reported a decrease in revenue from stock and derivatives trading.

Profit in the three months ended Sept. 30 fell to 52 cents a share from 61 cents in the third quarter of 2011. Excluding some costs, New York-based Nasdaq OMX said it earned 62 cents a share, beating the 60-cent average estimate (NDAQ:US) of analysts surveyed by Bloomberg. The stock, which closed yesterday at $24.13, down 1.6 percent in 2012, slipped 0.5 percent to $24 as of 11:30 a.m. in New York.

Chief Executive Officer Robert Greifeld, his leadership criticized following the botched initial public offering of Facebook Inc. (FB:US) in May, is competing for market share as revenue from trading shrinks around the world. The company said today that operating expenses in 2012 will be lower than it previously estimated.

“Despite the low level of trading activity, we remain focused on the factors that allow us to continue to win in our markets, and position us ideally for when a higher level of trading activity resumes,” Greifeld said in the statement. “We continued to exercise disciplined expense control.”

Market Revenue

Revenue excluding rebates, clearing and other fees fell 6.2 percent to $409 million, according to a statement. Total net cash equity trading revenue was $47 million, down 30 percent from $67 million a year ago. Access and broker services revenue (NDAQ:US) totaled $66 million, up $1 million from a year ago. Market data revenue was $84 million, Nasdaq OMX said.

The company lowered its forecast for total 2012 operating expenses to $922 million to $935 million, down from a previous forecast of $935 million to $965 million. The range excludes expenses related to cost reduction plans and the payout program for Facebook.

Average daily volume for equities listed on all U.S. exchanges was 6 billion shares in the third quarter, down 24 percent from 8.7 billion a year earlier, according to data compiled by Bloomberg. Nasdaq OMX’s share of stock trading fell to 20.4 percent, from 22.1 percent in the second quarter, Keefe, Bruyette & Woods Inc. said in an Oct. 18 report.

Volume Traded

KBW raised its estimate for Nasdaq OMX’s third-quarter earnings per share to 62 cents from 59 cents because of a “better rate per volume traded” than expected, Niamh Alexander, an analyst, said in an Oct. 11 note to clients.

Nasdaq OMX received 38 cents per 1,000 shares changing hands in U.S. equities during the third quarter, up 4 cents from the prior three months, for the highest level since the first quarter of 2011, the company said in a statement on Oct. 9. Its so-called revenue capture for each U.S. options contract traded was 18 cents, a decline from 19 cents in the second quarter.

“We continue to like Nasdaq’s predominantly recurring revenue mix, its solid cost management and active capital distribution program in an environment where trading volume growth and absolute levels remain challenged,” Alexander, who has a share forecast of $29 on the stock, said in the report.

Nasdaq OMX plans to start a derivatives trading platform in London to compete with Europe’s two biggest futures exchanges early next year and will seek to get at least 10 percent of the market in its first year, Greifeld said in an interview in London on Oct. 10. Plans for the venue, known as NLX, were announced in June, four months after the European Union blocked Deutsche Boerse AG’s takeover of NYSE Euronext. (NYX:US)

Derivatives Products

NLX, led by Charlotte Crosswell, will offer six interest- rate derivatives products, including futures on the German bund, Euribor futures and short sterling. It will offer medium-term German government debt known as Bobl, so-called Schatz short- term German debt, and a U.K. government bond.

NYSE Euronext’s London-based Liffe dominates the market for short-term interest-rate derivatives in Europe while Eurex in Frankfurt handles long-term products. Deutsche Boerse owns Eurex, Europe’s largest futures exchange. CME Group Inc., the world’s largest exchange operator by market value, also plans to open a market for currency futures in London next year.

Almost $900 million was erased from Nasdaq OMX’s market value in the second quarter after Facebook’s debut in May burned investors, spurred losses on Wall Street and prompted lawsuits against the exchange. The bourse boosted its compensation plan in July for brokers that lost money on the IPO, the biggest share sale since General Motors Co. in November 2010, to $62 million cash.

Facebook, NYSE

The Securities and Exchange Commission hasn’t yet approved the payout proposal.

As of yesterday’s close, the stock is up 6.4 percent since the May 18 Facebook IPO, compared with a 49 percent slump (FB:US) for the social-networking service.

NYSE Euronext, the largest U.S. stock-exchange operator, is scheduled to issue its quarterly report on Nov. 6. The average analyst projection is for 42 cents a share in profit, down from the 71 cents in the year-earlier period, according to data compiled by Bloomberg. Deutsche Boerse AG (DB1), the Frankfurt-based exchange, will post earnings results on Oct. 29.

To contact the reporter on this story: Nina Mehta in New York at nmehta24@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net; Chris Nagi at chrisnagi@bloomberg.net


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Companies Mentioned

  • NDAQ
    (NASDAQ OMX Group Inc/The)
    • $41.19 USD
    • 0.45
    • 1.09%
  • FB
    (Facebook Inc)
    • $78.69 USD
    • 1.74
    • 2.21%
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