NYSE Euronext (
) reported a 12% decline in revenues and a 16% decline in net
income in Q2 compared to the same period in the previous year.
Lower trading volumes in derivatives as well as cash equities
caused revenues to decline sharply in the second quarter. However,
the non-trading related revenues such as market data, listing and
technology services revenues increased by $18 million which
reflects the increasing diversification of the company's sources of
revenue. NYSE Euronext competes with
) and IntercontinentalExchange (
We have a price estimate near
$34 on NYSE Euronext
's stock, which is about 10% above the current market price.
Volatile Trading Related Revenues
In the U.S. cash equities market, NYSE Euronext reported about a
35% decrease in trading volume on difficult comparisons as Q2 2010
benefited from higher levels of market volatility driven by
the sovereign debt crisis in Europe as well as the flash crash
in the U.S. This caused the trading related revenues to drop by 20%
in Q2 2011.
Trading related revenues were also higher than average in Q2
2009 due to increased market volatility during global economic
crisis. NYSE Euronext's trading related revenues in Q2 2011 are
more in-line with its Q2 2008 level when the markets were normal.
About 70% of NYSE Euronext's revenues are trading related which
depend upon volatility in the equity markets and thus are
themselves quiet volatile.
Diversifying Revenue Sources
NYSE is quietly growing its non-trading related revenues which
are less volatile in nature. Its listing revenues are growing at an
annual rate of about 5%, and for the second consecutive quarter,
NYSE Euronext is globally #1 for IPOs and has won 55% of the total
technology IPOs this year.
The company's information and technology services revenues are
also growing more rapidly at above 30% a year for the past three
years due to huge investments in technology which help NYSE to
provide better connectivity to its clients.
NYSE Euronext's equities and derivatives trading account for
just under 90% of our valuation and remain the ultimate driver of
the stock; however, we believe that the growth in technology
solutions will help the company weather a volatile trading
See our complete analysis of NYSE Euronext.