Nasdaq is a leading provider of securities listing, trading, and information products and services. Nasdaq gets revenues from transaction services, market data products and services, listing fees, and financial products. NDAQ operates The Nasdaq Stock Market, the largest electronic equity securities market in the United States, both in terms of number of listed companies and traded share volume. As of December 31, 2005, NDAQ was home to approximately 3,200 listed companies with a combined market capitalization of over $3.8 trillion. NDAQ also operates The Nasdaq Market Center, which provides market participants with the ability to access, process, display and integrate orders and quotes in The Nasdaq Stock Market and other national stock exchanges. Transactions involving 363.3 billion equity securities were executed on or reported t in 2005, 13.9% higher than the 319.1 billion in 2004.
Nasdaq business can be divided into two major segments: From NDAQ - 10Q
Issuer Services. Our Issuer Services segment includes our securities listings business and our financial products business. The companies listed on The Nasdaq Stock Market represent a diverse array of industries including information technology, financial services, healthcare, consumer products and industrials. We also develop and license financial products and associated derivatives based on Nasdaq indexes. These include the QQQ, which is an exchange traded fund, or ETF, based on the Nasdaq-100 Index. The QQQ is one of the most actively traded ETFs in the world and the most actively traded listed security in the United States. We have also introduced financial products based on other Nasdaq indexes, including the Nasdaq Composite Index and the Nasdaq Biotechnology Index. In addition, we generate revenues by licensing and listing third-party structured products and third-party sponsored ETFs.
For the year ended December 31, 2005, Issuer Services accounted for revenues of $226.1 million, which represented 25.7% of our total revenues and 43.0% of our gross margin (total revenues less cost of revenues). See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements.
Market Services. Our Market Services segment includes our transaction-based business and our market information services business. The Nasdaq Market Center is our transaction-based platform that provides our market participants with the ability to access, process, display and integrate orders and quotes, which enabled our customers to execute trades in over 7,700 equity securities during 2005. The Nasdaq Market Center allows us to route and execute buy and sell orders as well as report transactions for Nasdaq-listed securities and those listed on national stock exchanges, including the New York Stock Exchange, or the NYSE, and the American Stock Exchange, or the Amex, providing fee-based revenues. We also generate revenues by providing varying levels of quote and trade information to market participants and to data vendors, who in turn sell subscriptions for this information to the public. Our systems enable vendors to gain direct access to our detailed order data, index information, mutual fund pricing information, and corporate action information on Nasdaq-listed securities.
For the year ended December 31, 2005, Market Services revenues were $653.6 million, which represented 74.3% of Nasdaq’s total revenues. Market Services gross margin was $299.7 million, which represented 57.0% of total gross margin. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements.
NYX's acquisition of Archipelago and Nasdaq's acquisition of INET is making the two exchanges go head to head as competitors. Nasdaq charges lesser fee for companies to list in Nasdaq where as Nyse charges a higher fee. Nyse has reduced its maximum fee to half a million dollars a year from a million dollars a year. Nasdaq already has a lower maximum fee of $75,000=00 a year. Nasdaq's growth strategy is through acquisition as seen by Nasdaq's bid for London Stock Exchange. There could be considerable stock dilution beause of these acquisitions. This is also the case with Nyse - however, the presence of former seat holders is a blocking factor against significant dilution.
Let us now take a look at the balance sheets to see how NDAQ is doing. The NDAQ stock has done extremely well going from a low of about $5=00/share in 2004 to the current levels of $40=00/share. The company swung to a profit in 2005 from a loss in 2004. The revenues increased in 2005 primarily due to the acquisition of Inet after years of declining revenues. The overall revenues in 2005 increased to 62% from 2004. The stock holders equity increased in 2005 by 60% from 2004. However, the stock dilution increased by 42% in one year. The revenues are growing at 30-50% range on a year over year basis.
According to the analyst opinion, the EPS is expected to grow by about 17% this year and more than 200% in the coming year. NYX looks like a better bet than NDAQ at the moment primarily because of Archipelago gaining market share and possible cost optimizations in the big board. Hilary Kramer sums up the stock best - as the stock for risk takers with a potential upside at $50=00 in the next eight weeks.