UPDATE 3-Nasdaq OMX profit drops; sees promise in pricing
* EPS ex-items 42 cents, matching Street view
* Sees up to $15 mln in new Q4 revenues from fee changes (Recasts, adds CEO comments, analyst, shares, byline)
NEW YORK, Nov 5 (Reuters) - Nasdaq OMX Group Inc (NDAQ.O) reported its third straight quarterly profit drop on Thursday, hurt by sagging cash equity trading, but the exchange operator's market share has rebounded and management said pricing changes should boost revenue in coming months.
The Nasdaq Stock Market parent company rebounded from five quarters of U.S. market share declines, helped by fee changes and the addition of the smaller and aggressively priced BX market. The company had 24.8 percent market share in October.
Although cash equities represent only 15 percent of overall revenue, analysts and investors see it as a bellwether of the company's core health, as younger rivals continue to battle traditional exchanges for narrow profit margins.
Management said higher fees at both of its stock markets would yield up to $15 million in new revenues in the current quarter, as long as volumes and market share remain in tact.
The new fees are a "fine tuning" of a handful of pricing adjustments made earlier this year, many of which "were essentially giving away money that wasn't having any impact on customer behavior," Chief Executive Robert Greifeld said on a conference call.
Net revenue fell 15 percent to $349 million in the third quarter, beating the average of $355 million expected by analysts, according to Thomson Reuters I/B/E/S.
Excluding some $46 million in one-time items, the company earned $89 million, or 42 cents per share, in the quarter ended Sept. 30, down from $108 million, or 51 cents per share, a year earlier. The earnings were in line with Street expectations.
Nasdaq OMX, which also operates Nordic markets and derivatives venues, said net transaction revenue dropped 27 percent, with the cash equities down 52 percent. It expects 2009 expenses to be at the high end of a previous forecast.
INDUSTRY-WORST SHARE PERFORMANCE
The company's shares added 0.6 percent, mostly in line with peers. They outperformed the industry last year as the company smoothly integrated a handful of acquisitions, including the OMX Nordic market operator and Philadelphia Stock Exchange.
But the shares are down about 22 percent this year, even as the Dow Jones Global Exchange index .DJGEX climbed 50 percent, as the company shed market share.
"We see resurgent U.S. market share, and its potential to catalyze estimate raises, meaningfully improving Nasdaq OMX's industry-worst share performance and valuation," Fox-Pitt Kelton analyst Edward Ditmire wrote in a note.
The company matched 22 percent of U.S. equities trading in the third quarter, down from 30 percent a year earlier amid a bruising price war with rivals. Although it gained some ground in the options market, revenue slipped due to sagging volumes.
Nasdaq OMX, like rival NYSE Euronext (NYX.N)(NYX.PA), has been under pressure from younger venues and dark pools, where orders are matched anonymously. But both have made recent gains thanks to adjustments to the complicated fee structure, known as "maker-taker," which rebates those who provide liquidity and charges those who take it.
Nasdaq OMX -- which last month announced a new listings and a new trading platform, struck a routing deal with Brazil's BM&F Bovespa (BVMF3.SA), and shelved an equity clearing plan -- said it has 20 participants using its interest rate swap clearinghouse, which it launched late last year.
The company is also a key player in the ongoing U.S. debate over high-frequency trading dark pools, for which regulators have proposed changes that would make them more transparent.
Greifeld said the market structure debate "will certainly be a significant net positive" for the company. (Reporting by Jonathan Spicer; editing by John Wallace and Derek Caney)
