NASDAQ Beats Estimates by a Nickel

| About: Nasdaq Inc. (NDAQ)

NASDAQ OMX Group Inc.’s (NASDAQ:NDAQ) fourth quarter operating earnings per share of 55 cents surpassed the Zacks Consensus Estimate of 50 cents and prior-year quarter earnings of 46 cents. Total operating earnings, on non-GAAP basis, increased 12% year over year to $184 million.

NASDAQ’s GAAP net income also came in at $137 million or 69 cents per share, up from $101 million or 50 cents in the prior quarter and $43 million or 20 cents in the year-ago quarter. Results in the reported quarter included $9 million of workforce reduction expenses, merger and strategic initiatives and other non-recurring items. These were offset by $36 million of tax benefit and adjustments.

Total net exchange revenues increased 8% year over year to $400 million, which were also higher than the Zacks Consensus Estimate of $384 million.

The increase was attributable to the positive impact of exchange rates and substantially improved revenues from market and transaction services and market technology, cash equity and derivative trading along with increased demand for co-location services. This was, however, marginally offset by low market data revenue and decline in industry volumes.

Segment-wise, Market Services net exchange revenues for the quarter increased 10% from the year-ago period to $265 million. Issuer Services revenues for the reported quarter were $89 million, up 7% from the year-ago period on robust performance from global index group coupled with marginal growth in global listing services revenue. Market technology revenues grew 5% year over year to $46 million.

During the reported quarter, NASDAQ’s order intakes dipped substantially to $71 million from $148 million in the year-ago quarter. However, total order value (the value of orders signed that have not been recognized as revenue) increased to $495 million from $417 million in the prior year quarter.

On non-GAAP basis, operating expenses increased 6% from the prior-year period to $216 million, primarily due to costs associated with SMARTS Group, professional and contract services costs and higher compensation expenses. Exchange rate of various currencies as compared to the U.S. dollar increased expenses by $2 million. On GAAP basis, total operating expenses increased 2.3% year over year to $225 million.

For full year 2010, NASDAQ reported net income of $395 million or $1.91 per share as compared with $266 million or $1.25 per share at the end of 2009. However, this came in three cents lower than the Zacks Consensus Estimate of $1.94 per share.

Net exchange revenue increased 4.7% year over year to $1.522 billion. This also came in higher than the Zacks Consensus Estimate of $1.504 billion. Total GAAP operating expenses increased 4.8% year over year to $891 million in 2010.

At the end of December 31, 2010, NASDAQ had cash and equivalents of $315 million, down from $594 million at the end of 2009. Debt obligations were higher at $2.181 billion from $1.867 billion at the end of 2009. While total assets increased year over year to $16.21 billion, total equity decreased to $4.73 billion, at the end of 2010.

Share Repurchase Update

On December 21, 2010, NASDAQ repurchased 22.8 million shares from Borse Dubai for $497 million. This transaction was financed with $130 million of cash on hand and $367 million from the net proceeds of 7-year senior bonds bearing a coupon of 5.25%. For the full year 2010, the company repurchased 37.8 million shares for $797 million, representing approximately 18% of NASDAQ's total shares outstanding at the beginning of 2010.

Acquisition Update

During the reported quarter, NASDAQ completed the acquisition of FTEN Inc., a leading provider of real-time risk management solutions for the financial securities market. With the implementation of new market access rules, FTEN is well positioned to grow as the industry becomes more focused on solutions for effectively managing risk.


For fiscal year 2011, NASDAQ management provided its operating expense outlook in the range of $920-$940 million, which now includes $25 million of recurring costs. The expense guidance incorporates the impact of SMARTS Group and FTEN acquisitions.

Management aims to generate annualized net revenue of $2 billion by the end of 2013.

With respect to the peer group activity, NASDAQ’s arch-rival NYSE Euronext Inc. (NYSE:NYX) is scheduled to release its financial results before the market opens on February 8, 2011.