Nasdaq OMX Group Inc.’s core profit topped analysts’ expectations for the fourth quarter, boosted by a rise in revenue from market data and technology, which helped offset a soft trading environment.
Stock market volumes declined from the elevated levels of the prior quarter as volatility eased and investors moved to the sidelines. But the parent of the Nasdaq stock market has diversified its revenues through a number of small “bolt-on” acquisitions over the years, and has reaped the benefits.
Higher demand for its proprietary data services helped drive the company’s market data revenue up 10 per cent, while market technology revenue rose 4 per cent from a year earlier due to recently delivered projects.
Transaction fees, meanwhile, slipped 1 per cent from a year earlier and were down 13 per cent from the prior quarter.
Nasdaq, which runs U.S. and Nordic markets, earned $82-million (U.S.), or 45 cents per diluted share, in the fourth quarter, down from $137-million, or 69 cents, a year ago. Excluding one-time items associated with debt refinancing and merger and strategic initiatives, it earned 63 cents a share, compared with 55 cents in the year-prior quarter.
Analysts on average expected the New York-based company to earn 61 cents a share, excluding items.
Revenue rose 6 per cent to $422-million, versus expectations of $417.16-million.
Nasdaq’s results were largely overshadowed by a ruling a couple of hours earlier by EU antitrust regulators blocking the merger of exchange operators Deutsche Boerse and NYSE Euronext on the grounds it would have lead to a near monopoly on the European futures market.
The sector has seen three other large deals fail this past year, including one in which the U.S. Department of Justice prevented Nasdaq and IntercontinentalExchange Inc. from buying NYSE Euronext.
Nasdaq chief executive officer Bob Greifeld said he was empathetic to what the management teams at both Deutsche Boerse and NYSE were going through, but that he does not believe the ruling will preclude other large exchange deals from happening.
“Our rejection by the DOJ and today’s rejection by the EU competition committee certainly sends a clear message that a transaction that results in over 90 per cent market share in a predefined market is highly suspect,” he said on a call with analysts.
“But there is a compelling industrial logic of combining operations and technology of non-overlapping exchanges, and that will happen in the future.”
Morningstar analyst Michael Wong said that Nasdaq itself would be a prime acquisition target.
“It would give instant diversification into U.S. equities, U.S. options, European equities, and European derivatives, listings and technology, and everything else that’s in the Nasdaq OMX package,” he said.
Mr. Greifeld said Nasdaq would focus on organic growth, with some smaller “bolt-on” acquisitions, while returning capital to shareholders through share buybacks.
He said a dividend was a matter of “when, not if,” and that it could come after the share buyback program is complete later this year.
While the quarter’s results beat expectations, one item that caught some analysts off guard was Nasdaq’s 2012 expense outlook of $955-million to $985-million.
“While initial guidance might prove to be conservative, it disappoints relative to our $940-million forecast and the $960-million Street consensus,” UBS analyst Alex Kramm said in a note to clients.
On the listings front, Nasdaq said its initial public offering pipeline is the largest it has been in more than 10 years.
For the fourth quarter, listing fees were up 2 per cent as Nasdaq added 56 new listings and 16 initial public offerings, including high-profile listings like Groupon and Zynga.
Nasdaq also said companies representing more than $80-billion in market capitalization, including Texas Instruments Inc., Viacom Inc., and Wendy's/Arby's Group Inc., switched their listings to Nasdaq from other exchanges.
Editor's note: An earlier version of this story incorrectly referred to Zegna as having gone public. Zynga went public in the fourth quarter. Ermenegildo Zenga is a private company. This version has been corrected.