NASDAQ Earnings Preview: Recent Acquisitions In Focus

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NASDAQ OMX (NASDAQ:NDAQ) has been going through a rough patch lately. Its reputation took a hit in August when a software glitch in its computers caused the U.S. markets to shut down for over three hours. Soon after, it lost its #2 rank in the U.S. exchange industry to BATS Global Markets. Additionally, it recently lost the high stakes battle for the Twitter IPO to rival NYSE Euronext (NYSE:NYX).

These events might have negatively impacted investor sentiment about the company. However, we believe that NASDAQ will report continued growth in net revenue during its Q3 earnings call on October 23, and beyond. Much of this growth is likely to come from the businesses acquired by the firm over the past year. Our price estimate for the firm’s stock is around $31, which is almost 10% below the current market price.

See our full analysis for NASDAQ OMX

Recent Acquisitions To Drive Growth

During the past quarter, NASDAQ has completed two large acquisitions and both of these purchases are expected to provide a significant one-time boost to its top line in Q3. The two assets also present significant future growth opportunities for the company.

Thomson Reuters’ corporate management arm: NASDAQ completed the acquisition of Thomson Reuters’ investor relations, public relations and multimedia solutions businesses in June 2013. According to the firm’s management, the acquisition enhances the scale of NASDAQ’s corporate solutions business, and is likely to provide several cross-selling opportunities in the future. [1] The purchase had already caused the revenue of the corporate solutions business to increase by over 40% year-on-year in Q2. However, Q3 is the first quarter in which the full impact of the purchase will be felt, and therefore we expect Q3 revenues to be even higher year-on-year (albeit not organically).

eSpeed: eSpeed is an electronic bond trading platform that NASDAQ purchased for around $1.2 billion this year. The acquisition closed in July and is expected to provide an entry point for NASDAQ in the fixed income segment. Over time, this segment is likely to grow rapidly as NASDAQ offers fixed income products to existing clients as well as launches new products. The platform is also likely to provide a one-time boost to NASDAQ’s revenue as it has started contributing significant trading volumes. Since the close of the acquisition, over $3 trillion worth of U.S. fixed income products are being traded on NASDAQ every month, according to the company’s disclosures. [2]

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Notes:
  1. NASDAQ OMX Completes Acquisition of Thomson Reuters Investor Relations, Public Relations and Multimedia Businesses, NASDAQ OMX, June 3, 2013 []
  2. NASDAQ OMX 2013/2012 Volumes and Revenue Capture, NASDAQ, October 2013 []