Image source: Nasdaq's current artist in residence, "@wantedvisual."
Despite lower trading volumes primarily in its derivatives and fixed-income businesses, Nasdaq OMX (NDAQ +3.24%) posted record revenue and earnings per share in the final quarter of 2015, reflecting the diversity of its business model.
Nasdaq OMX: The raw numbers
| Q4 2015 Actual | Q4 2014 Actual | Growth (YOY) | |
|---|---|---|---|
| Revenue | $536 million | $517 million | 3.7% |
| Net Income Attributable to Nasdaq OMX | $148 million | $87 million | 70.1% |
| Diluted EPS | $0.88 | $0.50 | 76% |
Data source: Nasdaq OMX 8K-filing, Jan. 28, 2016.
What happened with Nasdaq OMX this quarter?
Impressively, the 3.7% gain in recorded revenue seen in the table above occurred despite a headwind of $18 million due to foreign currency effects. Stripping away these effects, overall fourth-quarter organic revenue rose 5%, and organic revenue in the company's non-trading segments climbed 8%.
- Market services, which is Nasdaq's largest segment, accounting for 36% of total revenue, recorded a top-line decline, as equity derivatives, fixed-income instruments, currencies, and commodities saw lower industry trading volumes and weaker U.S. market share during the quarter. Market services' net revenue fell $6 million to $195 million from the comparable prior-year quarter. Operating margin declined 2 percentage points to $103 million.
- Information services continued to benefit from Nasdaq's 2015 acquisition of indexing strategies specialist Dorsey Wright & Associates, LLC. The segment, which holds roughly a quarter of total company revenue, achieved a revenue gain of 13%, to $127 million. Operating income rose 11% to $89 million.
- Technology solutions, at 27% of total revenue, grew sales marginally by $4 million, or 3%. However, operating income expanded by 35%, to $31 million.
- Listing services, which contributes 13% of total revenue, followed up on a strong third-quarter performance by growing revenue by 11%, to $68 million. Operating profit leaped 22%, to $28 million.
- The company continued its dominance in new equity listings. Nasdaq captured 78% of all IPO listings in the U.S. during the fourth quarter, and finished the year having won 73% of all U.S. IPOs.
- Nasdaq announced further penetration into the non-public markets with the acquisition of private company liquidity platform SecondMarket. The transaction helps build the Nasdaq Private Market's (NPM) brand as it seeks to extend Nasdaq's services to the vast market of private companies, from technology start-ups to middle-market enterprises.
What management had to say
Though the company continues to deliver impressive quarterly results, shareholders may have some misgivings, as global trading markets have languished, especially at the outset of 2016. Nasdaq CEO Bob Greifeld tackled these concerns in response to an analyst's question during the company's post earnings conference call:
On the trading business, it's important to recognize, and we saw some of this in the fourth quarter, and we are experiencing it in the first quarter, our business does well in volatile times. When you think about the trading businesses and people are worried about the fact that you're paid per transaction, it's a remarkably resilient model. In normal times we do well, and in difficult times we tend to do even better, and we're experiencing that in the first quarter.
And, as you correctly point out, we have 75% of the businesses recurring, and that recurring business tends to hold very steady through thick and thin. Obviously if you get into a prolonged recession then people have a longer time to rethink where they are. But there's such a big shock absorber in the recurring businesses that we have.
Moving forward
Nasdaq OMX continues to benefit from a strategy that looks beyond trading to offer a broad slate of services to market participants. The company has consistently used its ample operating cash flow to invest in technology, introduce new index products, and make strategic acquisitions benefiting each of its four operating segments. Should the markets suffer a deep setback in the near to medium term, Nasdaq will certainly feel the impact, but the organization appears more insulated from the vagaries of trading volumes with each passing quarter.
