Nasdaq Teams Up With Amazon To Offer Cloud Storage Services

September 26th, 2012 by Trefis Team
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Nasdaq OMX (NASDAQ:NDAQ) has entered a partnership with Amazon (NASDAQ:AMZN) to allow brokers in the U.S. to store trade information on the latter’s cloud network using a platform called FinQloud. [1] The platform will allow investors to keep track of financial data that they are required to maintain and will also help them save money as it uses a pay per gigabyte fee structure. Users will only have to pay for storage capacity used, thus saving on storage costs that they would have incurred had they used their own systems. [2]

Although some customers might be skeptical of the offering given the recent software glitches that have plagued Nasdaq’s systems, the company insists that it will maintain strict vigilance to ensure that it meets  the “stringent operational and regulatory security requirements of the financial services industry and to protect data integrity.” (Please see our discussion on the impact of the recent software glitches on the major U.S. exchanges: NYSE Ponies Up On Fine Over Delivery Disparities For Market Data)

Our price estimate of $29 on Nasdaq OMX’s stock is about 25% above the current market price.

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See our full analysis for Nasdaq OMX| NYSE Euronext|CME Group

Nasdaq is looking to offset a decline in trade volume. Concerns over the slower-than-expected recovery of the U.S. economy and rising national debt have deterred investors, while the prolonged European sovereign debt crisis has taken a toll on investor confidence in Europe. U.S. matched equity volume in August was down 53% from the same period prior year. European equity volume also suffered, declining 57% year-on-year. [3]

To compensate for the loss in its core business, Nasdaq is looking to diversify its operations and strengthen its market data segment. The segment accounted for 22% of the company’s net revenue in the second quarter of 2012 as the division’s revenues increased by 8% year-on-year to $90 million.

The FinQloud platform might drive further growth in this division. It offers two services for broker-dealers: Regulatory Records Retention (R3), which allows customers to store data to meet record retention obligations, and Self Service Reporting (SSR), which allows customers to analyze the data that they have stored to develop strategies for future trades.

Market data accounts for 22% of our price estimate for Nasdaq’s stock. We currently forecast a steady growth in revenues, reaching $327 million by the end of our forecast period. There is a potential upside of 10% to our price estimate should the growth in revenues be faster than we currently anticipate, breaching $500 million. You can modify the interactive chart below to gauge the effect of a change in our forecast on the price estimate.

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Notes:
  1. Amazon Powers Nasdaq’s New Cloud Computing Platform, Press Release, 25th September, 2012 [↩]
  2. Nasdaq OMX, Amazon to Partner on Cloud Storage of Data, Bloomberg, 25th September, 2012 [↩]
  3. NASDAQ OMX 2012/2011 Volumes and Revenue Capture, Nasdaq [↩]