UPDATE 2-Nasdaq profit beats expectations, helped by deals

Wed Oct 23, 2013 1:19pm EDT

* Q3 profit of 66 cents/share vs expectations of 62 cents/share

* Stock up 4.4 pct around midday

* Revenue up 23 pct to $506 mln vs expectations of $502.6 mln

By John McCrank

Oct 23 (Reuters) - Transatlantic exchange operator Nasdaq OMX Group on Wednesday reported a higher third-quarter profit that beat expectations as recent acquisitions helped boost revenues.

The company earned 66 cents per share, topping the consensus of analysts by 4 cents, according to Thomson Reuters I/B/E/S.

Nasdaq's shares were up 4.4 percent at $35.06 around midday.

The results came despite what Nasdaq Chief Executive Robert Greifeld said was a very difficult environment.

"The transaction business is still going through difficult times, our customers are not thriving, and we just feel like we have to navigate around headwinds," he said in an interview.

Nasdaq has been diversifying away from its traditional stock transaction business for years, even before volumes plunged during the global economic crisis, and into businesses that provide a steadier income flow.

The New York-based company closed a $390 million deal to buy Thomson Reuters Corp's investor relations, public relations and multimedia services units in the second quarter. It closed a $750 million deal to buy eSpeed, the electronic Treasuries-trading platform, from BGC Partners Inc, in June. Nasdaq said the acquisitions were adding to earnings and integration was ahead of plan.

In the latest quarter, 73 percent of Nasdaq's revenue came from businesses that do not depend on transactions. Cash equities made up just 9 percent of total revenue.

Revenue at Nasdaq's technology solutions segment, which includes the new IR, PR, and multimedia businesses, increased by $58 million from a year earlier to $131 million. Information Services revenue rose by $19 million to $118 million, with market data revenue rising by $16 million to $100 million.

SCALE IMPORTANT FOR STOCKS

Greifeld said he would still consider buying the European stock exchange unit of NYSE Euronext if it came on the market, following NYSE's proposed sale to derivatives market and clearing house operator IntercontinentalExchange Inc.

The processing power of Nasdaq's European data center would be able to handle every European equity trade today without spending a nickel, so there would be a fundamental driver behind potentially combining with Euronext, Greifeld said on a conference call with analysts.

ICE and NYSE plan to spin off Euronext, likely at some point next year, and European officials have privately expressed concerns about the exchange group once again falling into foreign hands.

Nasdaq has reached out to regulators and politicians in Europe to try to allay their concerns, Greifeld said in the interview.

"We've been there and we're definitely held up as a good role model," he said, referring to Nasdaq's 2006 acquisition of Nordic and Baltic exchange operator OMX.

Nasdaq paid down $98 million in debt in the last quarter and expects to return to its long-term leverage target in the first half of 2014, which would give it more flexibility in deal-making, or to resume its share buy-back program, which it put on hold after the recent acquisitions.

The company's rivals have also been busy diversifying and adding scale. Aside from the more than $10 billion ICE-NYSE deal, BATS Global Markets and Direct Edge, which together currently have more market share than Nasdaq, announce plans to merge.

Greifeld said he sees opportunities to boost Nasdaq's market share in the wake of the BATS-Direct Edge merger, as customers may not appreciate the merged exchanges plans to make more money off of their combined market data offerings.

"We're obviously talking to those folks," he said.

Net income attributable to Nasdaq in the quarter was $113 million, up from $89 million a year earlier. Revenue rose 23 percent to $506 million, versus expectations of $502.6 million.

Operating expenses rose to $304 million from $242 million, mainly due to deal costs.

Nasdaq narrowed its core expense forecast for 2013 to a range of $1.075 billion to $1.090 billion, from $1.070 billion to $1.1 billion previously.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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