Eroding market share and weaker trading volumes hurt Nasdaq OMX Group Inc.'s fourth-quarter revenue, but sharply lower taxes and fewer charges helped the global exchange operator report better-than-expected profit growth.
Nasdaq OMX Group's revenue fell as trading activity declined and the exchange operator continued to face market competition. Rival trading platforms launched in recent years have eaten away at market share held by long-standing exchange operators like Nasdaq OMX and NYSE Euronext. The added players also have pressured fees generated from handling trades.
During the fourth quarter, 20.6 percent of U.S.-listed equities trading volume was executed on Nasdaq OMX Group's trading platform, down from 29.2 percent in the final quarter of 2008. Total volume fell 36 percent to 126.1 billion shares.
The company, however, did see some stabilization in market share from the 2009 third quarter and its options business delivered a strong performance. Its share of the U.S. equities market rose to 24 percent from 22 percent in the third quarter. Nasdaq OMX said January started slowly but volumes and market share bounced back to early fourth-quarter levels and Chairman and CEO Bob Greifeld said February is "looking even better."
"We're happy with the share gains in the fourth quarter," Greifeld said on a conference call with analysts Monday. "We're happy with what we've done now in the first quarter...So in the grand scheme of the market share battles, I think it's just noise and we feel happy with our progress."
Separately, Greifeld said it would be a "hard job" for the government to sort out banks' proprietary trading from customer activity — referencing President Barack Obama's proposal last month to restrict large bank holding companies that combine commercial and investment banking from carrying out their own high-risk bets. The idea — which would affect some of Nasdaq's customers — has been pushed by Obama adviser and former Federal Reserve Board Chairman Paul Volcker.
"Once you get into what's prop, what's customer facilitation, what's riskless principle, it gets impossible," Greifeld said. "So I think they would have to find a different path to go."
The company's net income for the final three months of 2009 rose 23 percent to $43 million, or 20 cents per share, from $35 million, or 17 cents per share, a year ago. Nasdaq OMX paid just $10 million in income taxes, down from $38 million a year earlier.
Excluding one-time impairment charges and gains on the sales of certain businesses, Nasdaq OMX Group earned $99 million, or 46 cents per share, in the latest period — down 10 percent year-over-year.
Net revenue, which is total revenue less rebates, brokerage, clearance and exchange fees, fell to $369 million from $403 million during the final quarter of 2008. Transaction revenue slid 17 percent to $150 million.
The results just topped the average estimate of analysts polled by Thomson Reuters, who had forecast adjusted earnings of 45 cents per share on revenue of $364.8 million.
Deutsche Bank North America analyst Michael Carrier said the company posted a "decent" quarter given the environment. But he maintained a "Hold" rating on Nasdaq shares, saying ongoing volume and pricing headwinds are likely to limit the stock's upside.
Nasdaq OMX shares fell 69 cents, or 3.7 percent, to $18.11 in afternoon trading.
For the full year, Nasdaq OMX Group's profit fell to $266 million, or $1.25 per share, from $314 million, or $1.55 per share, in 2008.
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