By Jacob Bunge
NYSE Euronext (NYX) on Tuesday dropped a key growth target for
its technology services business as customers crimped spending, and
accelerated its retreat from overseas investments that have
generated little return.
The Big Board parent had aimed to secure $1 billion in annual
revenue by 2015 from selling technology to other exchange
operators, doubling the size of the existing business and
offsetting the impact of declining trading volume that has weighed
on the sector.
"Although we've made a lot of headway, a large portion of our
earnings remain linked to trading," said NYSE Euronext Chief
Executive Duncan Niederauer on a post-earnings' call after the
company reported a 42% drop in third-quarter profit.
The stock was recently down 5.5% at $24.20.
Mr. Niederauer said capital spending in the exchange and trading
sector has fallen by 15% to 20% in 2012 compared with last year,
and though NYSE Euronext's profit from the technology sector fell
by a quarter in the latest period, Mr. Niederauer said the
"long-term vision" for the business hadn't changed.
NYSE Euronext has invested heavily in the technology side,
committing about $500 million to build data center facilities in
the U.S. and the U.K. alongside a raft of acquisitions to round out
its offering to customers of its exchanges and other financial
firms. Acquisitions remain one way to build the business, Mr.
Niederauer said.
A slide in trading activity on both sides of the Atlantic as
investors reduced their risk appetite does not represent a
"structural shift" in the market, Mr. Niederauer said Tuesday. NYSE
Euronext is nonetheless stepping up efforts to exit investments in
trading ventures that have produced little value for the company in
recent years, he said.
The company plans early next year to divest its 5% stake in
Multi Commodity Exchange of India Ltd. (534091.BY), an investment
currently valued at about $60 million. A 9% position in
clearinghouse operator LCH.Clearnet Group Ltd. will also be
trimmed, according to Mr. Niederauer, which could free up another
$50 million, though a 3% or 4% stake is expected to be
retained.
The moves will follow the planned closure in December of
Parisian carbon market BlueNext SA, 60% owned by NYSE Euronext. On
Tuesday NYSE Euronext said it restructured an investment in the
Qatar Exchange that will avoid $80 million in future payments,
while maintaining a $120 million position in that platform.
NYSE Euronext reported net profit of $108 million for the
quarter to Sept. 30 compared with $186 million a year earlier.
Per-share earnings dropped to 44 cents from 50 cents, ahead of the
41-cent analysts' consensus. Costs have fallen by one-third this
year as the company exited some ventures and shed senior staff,
putting the company ahead of schedule on a plan to trim $250
million in expenses by 2014.
NYSE Euronext embraced cost-cutting efforts in the springtime
after European Union lawmakers nixed the company's planned merger
with Deutsche Boerse AG (DB1.XE, DBOEF) on antitrust grounds,
citing the partners' combined sway over derivatives trading.
Net revenue in the third quarter fell 21% to $559 million, and
NYSE Euronext suffered a $20 million loss from foreign-exchange
fluctuations, with some fees collected in euros and pounds
sterling.
Mr. Niederauer said the decision to shut U.S. stock and bond
markets last week for two days in deference to Hurricane Sandy was
"the right thing to do." NYSE Euronext "helped build a consensus"
to make the move, he said.
--Noemie Bisserbe contributed to this article.
Write to Jacob Bunge at jacob.bunge@dowjones.com
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