Could Upcoming Tech IPOs Shift the Balance of Power for Exchanges

By Trefis Team,

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Nasdaq OMX Group ( NDAQ ) is a leading global exchange group that delivers trading, exchange technology, securities listing, and public company services across six continents. Their global offerings are diverse and include trading across multiple asset classes, market data products, financial indexes, capital formation solutions, financial services and market technology products and services. The biggest competitor to Nasdaq is NYSE Euronext ( NYX ) with 3 major exchanges in the U.S. - NYSE, NYSE Arca, NYSE Amex. NASDAQ also faces competition from BATS Global Markets and other regional exchanges.

We have a price estimate of $26.59 on Nasdaq's stock which is almost 10% above market price.

Nasdaq derives almost 22% of its value from U.S. cash equity trading. The Nasdaq Stock Market is the largest single pool of liquidity for trading U.S.-listed cash equities, with approximately 21% of all U.S. equities volume for 2009. But NYSE has outpaced Nasdaq for the lead in initial public offerings and new listings for the U.S. market in 2010, both in total capital raised as well as the number of transactions.

Potential Large Tech IPOs Around the Corner

With a lot of media attention now centered around potential tech IPOs like Facebook, LinkedIn, Groupon and Zynga, NYSE is looking to attract new companies to its exchange. Previously, Nasdaq has been the preferred exchange for  listing tech company with large tech IPOs like Google ( GOOG ), Amazon ( AMZN ) and Ebay ( EBAY ) choosing Nasdaq over NYSE.

Last year, NYSE won 40% of the tech IPO listings including China's, which is regarded as the best performing IPO of 2010. Winning upcoming tech IPOs will not be an easy task for NYSE as Nasdaq is still the preferred venue for new U.S. tech listings. Nasdaq has already won listings from Skype and Kayak, whose IPOs are anticipated later this year.

Nasdaq's Market Share of U.S.-Listed Equity Trading Volume

Nasdaq has been successful in capturing a good share of the U.S. cash equities trading market due to continuous technological innovation and improvement in order execution techniques, but new players in the market like BATS Global Markets and Direct Edge have threatened Nasdaq's market share in recent years. We estimate that further improvement in trading technologies will help Nasdaq gain market share over its competitors. Also, increasing prospects for algorithmic trading, which is expected to account for 33% of all the equity cash trades occurring in the U.S. by 2012,  should lift Nasdaq. We anticipate that Nasdaq's market share of U.S.-listed equity trading volume will grow from 25% in 2010 to about 29% by 2014.

However, much of our forecast for Nasdaq's market share is dependent on its ability to maintain a hold on tech IPOs. With several high profile IPOs impending, a new precedent could be for future tech IPOs set should another exchange receive these listings. If upcoming offerings like Facebook and LinkedIn decide to list on NYSE, Nasdaq's market share of U.S.-listed equity trading could disappoint in regard to our base estimates.

Drag the trend line in the modifiable chart above to see the affect of various market share scenarios on Nasdaq OMX Group's stock value.

Click here to view our full analysis of Nasdaq's stock.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: AMZN , EBAY , GOOG , NDAQ , NYX

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