Nasdaq OMX Group Inc. (NDAQ:US), the second- largest U.S. stock exchange, reported first-quarter profit that exceeded analysts’ estimates as revenue from information services and technology increased.
Earnings excluding some items increased to 64 cents a share in the three months ended March 31 from 61 cents a year ago, the New York-based company said in a statement today. That beat the 62-cent average forecast of analysts surveyed by Bloomberg. The company said it may pay $10 million to resolve a Securities and Exchange Commission investigation into the mishandling of Facebook Inc.’s initial public offering.
Costs from the botched IPO weighed on first-quarter profits at a time when Chief Executive Officer Robert Greifeld is diversifying the business to offset a global decline in stock trading. In the last few months the exchange has bought eSpeed, an electronic platform for trading U.S. Treasury bonds, the shareholder-relations unit of Thomson Reuters Corp. and a 25 percent stake in TOM, a Dutch alternative trading system focused on options.
“While the volume environment remained challenging, our portfolio of corporate, trading, technology and information businesses continue to deliver consistent revenue and earnings performance,” Greifeld said in the statement. “We are confident that a recovering economy and increasing investor confidence will eventually lead to stronger tailwinds for our businesses.”
Charges related to the Facebook IPO led to a 51 percent drop in first-quarter net income, to $42 million, or 25 cents a share, from $85 million, or 48 cents a share, a year earlier. The profit figure includes the $10 million set aside for the SEC probe as well as the $62 million regulators have cleared as Nasdaq’s plan to compensate brokers for the Facebook debut.
Nasdaq shares slipped 2.8 percent to $27.67 at 1:50 p.m. New York time, headed for the lowest close since Jan. 24.
The $62 million compensation pool will go to traders who lost money after a design flaw in the exchange’s computers delayed Facebook’s open and left them confused about how many shares they owned. Computer systems used to establish Facebook’s opening price on May 18 were overwhelmed by order cancellations and updates during the “biggest IPO cross in the history of mankind,” Greifeld said two days after the offering.
Greifeld received 18 percent more in compensation for 2012 even as his bonus was reduced due to the Facebook IPO.
For the full year, Nasdaq forecast core operating expenses in the range of $910 million to $930 million. In addition, Nasdaq expects $50 million to $60 million for “new initiative spending” and $12 million related to a 2013 accounting reclassification of certain Corporate Solutions expenses.
Average daily volume for equities listed on all U.S. exchanges was 6.35 billion shares in the first quarter, 6.8 percent down from a year earlier, according to data compiled by Bloomberg.
“There will be a beta return, a cyclical return to equity volumes,” Greifeld said on a call with analysts today. “We’ll be the beneficiary of that, and we’ll enjoy that, but clearly, our job is to not sit around and wait for that. It’s to make sure that we’re building our business independent of the volume environment.”
Nasdaq OMX’s biggest rival, NYSE Euronext (NYX:US), agreed in December to be acquired by futures bourse IntercontinentalExchange Inc. for $8 billion in a move that underscored the growing importance of derivatives in the face of shrinking volume worldwide.
Nasdaq, which has a program called GIFT to fund projects such as the new derivatives market in London, said it will also seek “strategic acquisitions.”
Revenue from the market services unit, accounting for 43 percent of net exchange revenue, fell to $182 million in the first quarter from $190 million a year ago. The unit includes cash equities, where volume is declining, derivatives and access and broker services.
The information services division, accounting for 26 percent of revenue, took in $108 million during the quarter, up from $102 million, the exchange said. The unit covers market data and index licensing.
The technology solutions unit, which comprises 18 percent of revenue, generated $73 million in the first quarter, compared with $66 million a year ago.
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