Nasdaq OMX Group posted sharply higher fourth-quarter profit before one-time items, beating estimates and sending its shares up five per cent, as huge volatility generated big trading revenue for the trans-Atlantic exchange operator.
The owner of the Nasdaq Stock Market also forecast a lower-than-expected increase in operating expenses of less than five per cent this year, suggesting it will continue to control costs as it integrates recent acquisitions, including the purchase of Nordic exchange group OMX last year.
Despite analysts' expectations that the global stock sell-off will dampen volumes in coming months, Nasdaq Chief Executive Robert Greifeld said trading volumes so far in 2009 have been higher than he expected a couple months ago.
"We do expect volatility through 2009 to be high by historical standards," Greifeld said in an interview. "I think we certainly will approach the volatility levels we saw during some of the days in 2008. "But we are bound to have a month, maybe two months, near December", when volumes and volatility are well below average.
Including one-time items, net earnings fell 53 per cent, hurt by losses from foreign currency contracts, asset impairment charges and merger expenses, which together totalled $92 million (Dh338m).
Revenue from cash trading nearly doubled, boosted by the steepest portion of last year's volatile stock sell-off, which drove traders to the market in force. Total revenue in the quarter jumped 54 per cent to $1 billion, meeting expectations.
The company expects 2009 operating expenses of $840m to $860m, including $30m in merger costs. Operating expenses were $819.9m last year.
"It looks like a nice solid beat of consensus, and the expense forecast for 2009 is lower than our expectations, and probably a lot of other people's," said Edward Ditmire, an analyst at Fox-Pitt Kelton. "To the extent that Nasdaq has been edging in on more trading and more listings, it will probably hold up slightly better on the revenue side than NYSE Euronext going into the year."
NYSE Euronext, which operates the Big Board, is Nasdaq's chief US rival.
Separately, Nasdaq said David Warren will step down as chief financial officer in July and leave the company in December. He will be succeeded by Adena Friedman, Executive Vice-President of corporate strategy and global products.
Excluding one-time items, Nasdaq earned $112.1m, or 53 cents per share, in the quarter, up from $82.9m, or 38 cents per share, a year earlier. On average, analysts polled by Reuters Estimates expected earnings of 51 cents a share.
Including one-time items, the biggest of which was a $47.4m charge related to Nasdaq's acquisition of subsidiaries of power exchange Nord Pool, net earnings were $36.8m, or 17 cents per share.
A prolonged bear market could take a bite out of Nasdaq's trading revenue, which is typically more sensitive than competitors to changes in fee-generating volatility.
Its strategy has been to ride out the recession by making acquisitions and diversifying into options, commodities, clearing equities and derivatives, and ramping up a new alternative trading facility in Europe.
Nasdaq bought a controlling stake in the International Derivatives Clearing Group (IDCG) in December and hopes to ramp up clearing of interest rate swaps this year. It is also in talks with potential stakeholders "who can contribute in a material way to the success" of IDCG, Greifeld said, adding talks were "going very well".
He said regulators, legislators and customers may need to coax clearinghouse customers in order for it to get off the ground.