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Nasdaq cautious as volume spike drives first-quarter profit beat

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·2-min read
A view of the exterior of the Nasdaq market site in the Manhattan borough of New York City
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By John McCrank and Noor Zainab Hussain

(Reuters) - Nasdaq Inc <NDAQ.O> reported higher-than-expected first-quarter profits on Wednesday, benefiting from market volatility fueled by the coronavirus crisis, but the transatlantic exchange operator also warned of uncertainty ahead.

Trading volumes surged as global financial markets were ravaged by the rapid spread of the pandemic in the quarter, leading to a big increase in transactional revenues at Nasdaq.

But the environment also presented challenges, with nearly all of Nasdaq's 27 initial public offerings in the period coming in the first half of the quarter.

"The vast majority of IPO candidates are waiting to see if market conditions stabilize," Nasdaq Chief Executive Officer Adena Friedman said on a conference call with analysts.

Some companies were also reducing near-term discretionary spending as well as delaying purchasing decisions, which could impact Nasdaq's corporate solutions business, she added.

"Early observations of the impact of the virus in 2020 makes us more cautious about our short-term growth prospects for the remainder of the year," she said.

That is because Nasdaq clients are dealing with the twin challenges of a surge in trading volumes and the logistical challenges of the health crisis, with staff working remotely.

At Nasdaq, which also operates exchanges in Canada, Denmark, Iceland, Norway and Sweden, 98% of employees are working from home.

"We are all navigating through an unprecedented moment in history as our global community fights the spread of COVID-19 and prepares for what will be a lasting impact on our daily life," Friedman said.

Nasdaq reported quarterly net income of $203 million, or $1.22 per diluted share, down from $247 million, or $1.48 per diluted share, a year earlier.

The drop was mainly due to bond refinancing costs as Nasdaq took advantage of lower interest rates aimed at countering the economic impact of the crisis. Nasdaq said it also borrowed from its revolving credit line to boost its cash position in light of the uncertain environment.

Stripping out one-time items, Nasdaq earned $1.50 per share, topping analysts' expectations by 4 cents, according to IBES data from Refinitiv.

The higher trading volumes boosted revenues at Nasdaq's market services unit, which oversees transactions, clearing and settlements, by 21%.

Looking at the current quarter, U.S. equity share volumes are up 92% in April versus a year earlier, Friedman said.

Revenues in Nasdaq's non-trading businesses, which provide companies with a broad range of information and technology, were up 7%.

Overall revenue rose 11% to $701 million.

(Reporting by John McCrank in New York and Noor Zainab Hussain in Bengaluru; Additional reporting by Bharath Manjesh in Bengaluru; Editing by Shinjini Ganguli and Paul Simao)

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