Nasdaq OMX Group Inc.'s core profit topped analysts' expectations for the fourth quarter, boosted by a rise in revenue from market data and technology, which helped offset a soft trading environment.
Stock-market volumes declined from the elevated levels of the prior quarter as volatility eased and investors moved to the sidelines. But the parent of the Nasdaq stock market has diversified its revenues through a number of small "bolt-on" acquisitions over the years, and it has reaped the benefits.
Higher demand for its proprietary data services helped drive the company's market data revenue up 10 percent, while market-technology revenue rose 4 percent from a year earlier due to recently delivered projects.
Meanwhile, transaction fees slipped 1 percent from a year earlier and were down 13 percent from the prior quarter.
Nasdaq, which runs U.S. and Nordic markets, earned $82 million, or 45 cents per diluted share, in the fourth quarter, down from $137 million, or 69 cents per share, a year ago.
Excluding one-time items associated with debt-refinancing and merger and strategic initiatives, it earned 63 cents a share, compared to 55 cents in the year-prior quarter.
Analysts on average expected the New York-based company to earn 61 cents per share, excluding items.
Revenue rose 6 percent to $422 million, versus expectations of $417.16 million.
Nasdaq's shares were up 1.09 percent at $25.03 on Wednesday around midday.
ANOTHER DEAL FAILS, BUT M&A NOT DEAD
Nasdaq's results were largely overshadowed by a ruling a couple of hours earlier by EU antitrust regulators blocking the merger of exchange operators Deutsche Boerse and NYSE Euronext on the grounds it would have lead to a near monopoly on the European futures market.
The sector has seen three other large deals fail this past year, including one in which the U.S. Department of Justice prevented Nasdaq and IntercontinentalExchange Inc from buying NYSE Euronext.
Nasdaq Chief Executive Bob Greifeld said he was empathetic to what the management teams at both Deutsche Boerse and NYSE were going through, but that he does not believe the ruling will preclude other large exchange deals from happening.
"Our rejection by the DOJ and today's rejection by the EU Competition Committee certainly sends a clear message that a transaction that results in over 90 percent market share in a pre-defined market is highly suspect," he said on a call with analysts.
"But there is a compelling industrial logic of combining operations and technology of non-overlapping exchanges, and that will happen in the future."
Morningstar analyst Michael Wong said that Nasdaq itself would be a prime acquisition target.
"It would give instant diversification into U.S. equities, U.S. options, European equities, and European derivatives, listings and technology, and everything else that's in the Nasdaq OMX package," he said.
ORGANIC GROWTH IN FOCUS, DIVIDEND EYED
Greifeld said Nasdaq would focus on organic growth, with some smaller 'bolt-on' acquisitions, while returning capital to shareholders through share buybacks.
He said a dividend was a matter of "when, not if," and that it could come after the share buyback program is complete later this year.
While the quarter's results topped expectations, one item that caught some analysts off guard was Nasdaq's 2012 expense outlook of $955 million to $985 million.
"While initial guidance might prove to be conservative, it disappoints relative to our $940 million forecast and the $960 million Street consensus," UBS analyst Alex Kramm said in a note to clients.
On the listings front, Nasdaq said its initial public offering pipeline is the largest it has been in more than 10 years.
For the fourth quarter, listing fees were up 2 percent as Nasdaq added 56 new listings and 16 initial public offerings, including high-profile listings like Groupon and Zynga.
Nasdaq also said companies representing over $80 billion in market capitalization, including Texas Instruments, Viacom, and Wendy's, switched their listings to Nasdaq from other exchanges.
(This version corrects penultimate paragraph to Zynga instead of Zegna)
(Reporting by John McCrank in New York; Editing by Derek Caney, Dave Zimmerman and Gunna Dickson)