Who knew? The point: Nasdaq is constantly expanding its offerings to remain competitive.
If you're the operator of an exchange through which one in 10 of all global securities transactions flow, you're probably not worried over whether the lengthy bull market can continue, so long as volume keeps up. And volume was certainly healthy for Nasdaq OMX (NDAQ 0.10%), which reported record revenue for the third quarter of 2015 on Oct. 22.
Nasdaq OMX: The raw numbers
| Q3 2015 Actual | Q3 2014 Actual | Growth (YOY) | |
|---|---|---|---|
| Revenue | $529 million | $497 million | 6.4% |
| Net Income Attributable to Nasdaq OMX | $138 million | $123 million | 12.2% |
| Diluted EPS | $0.80 | $0.71 | 12.7% |
Source: Nasdaq OMX 8K-filing, Oct. 22, 2015.
What happened with Nasdaq OMX this quarter?
After last quarter's decent profits but flattish top-line growth, Nasdaq showed appreciable improvement in both revenue and earnings. Removing foreign currency and acquisition effects, organic revenue increased 9%. Results were quite balanced due to the company's broad diversification among its four operating segments.
- Market services, the company's largest segment at 38% of total revenue, expanded nearly 6% during the quarter, posting $200 million in net revenue. Operating profit rose 11% to $109 million.
- Information services, which accounts for one-quarter of total revenue, increased sales by 16%, receiving a boost from Nasdaq's acquisition earlier this year of data analytics and indexing strategies specialist Dorsey Wright & Associates, LLC. The segment's operating income rose 14% to $96 million.
- Technology solutions, which is approximately equal in size to the information services segment, saw a revenue decline of $4 million, or 3%, which the company attributed to foreign currency translation. The segment contributed $19 million to overall operating profit, which represented a brisk rise of 17% from the prior year.
- Listing services, Nasdaq's smallest business at 12% of total revenue, exhibited a healthy top-line gain of 12%, achieving $66 million in sales. Operating profit widened 16% to $29 million.
- Also of note, the company reported that it won the listings of nearly 80% of all U.S. IPOs in Q3 2015.
- Finally, Nasdaq launched its "Nasdaq Futures (NFX)" exchange on July 24. This exchange competes directly with CME Group (CME 0.59%), and is attempting to lure traders with a reduced commission structure. Nasdaq disclosed that NFX is seeing healthy volume, with open interest surpassing 300,000 contracts. The exchange offers over 20 products, with an initial focus on energy benchmark index derivatives.
What management had to say
Nasdaq CEO Bob Greifeld was pleased with the type of revenue responsible for the results. "As evidence of the ongoing successful execution of Nasdaq's strategy, the company delivered broad-based organic growth, in both the transactional and recurring segments, and demonstrated the operating leverage inherent in the model," he noted. Indeed, after stripping away acquisition and currency effects, organic revenue rose 12% in Market Services, and 8% in the three non-transactional segments combined.
Looking forward
Nasdaq OMX has broadened its strategy into a three-pronged approach to progress. It's acquiring businesses like Dorsey Wright, seeking to improve trading volume and services in order to boost organic revenue and launching new platforms directly into the paths of competitors like CME. Investors have certainly taken notice -- the "NDAQ" ticker is up more than 43% year to date. So far in 2015, management has proven the investing premise that Nasdaq OMX offers a stable business harboring multiple growth opportunities.
