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Investment Overview for Nasdaq OMX Group (NASDAQ:NDAQ)
Below are some key drivers of NASDAQ's value with potential upside or downside to our price estimate for the company's stock.
- Daily Volume of U.S. Listed Options Contracts The daily volume of options contracts traded across all exchanges in the U.S. has increased from 13 million in 2008 to over 14.5 million in 2016, and we estimate that it will reach approximately 17 million by the end of our forecast period, largely because of the shift toward electronic trading. Also, growth in algorithmic (high-volume) trading will boost volumes moving forward. However, there could be about 5% upside to our price estimate for Nasdaq if the daily volume of options contracts increases to 22 million by 2020.
- Market Share of U.S. Listed Shares Since past couple of years, NASDAQ has been losing market share in U.S. cash equities due to increasing competition from electronic exchanges like BATS Global Markets and Direct Edge NASDAQ. NASDAQ's share in the U.S. market decreased from 21% in 2011 to 17.4% in 2016. We expect NASDAQ's market share to remain stable at about 17.6% throughout our forecast period. If NASDAQ is loses market share to pre-2006 levels of under 15% by the end of our forecast period this would present an downside of about 5% to our price estimate.
Nasdaq OMX Group ("NASDAQ") is a global exchange group that provides trading, exchange technology, securities listing, and public company services globally. The company's financial services include equity and derivatives trading, market data products, index services, financial services and market technology products.
NASDAQ Stock Market
As of December 31, 2016, the NASDAQ Stock Market had 3,797 listed companies. The company also operates a second equity market in addition to options and futures markets and a derivative clearinghouse. The NASDAQ market is the company's most well-known brand, and U.S. listing and cash-equity trading (which we present as two separate divisions) account for over 22% of the company's value, according to Trefis estimates.
In Europe, NASDAQ operates the NASDAQ OMX Nordic, NASDAQ OMX Baltic and NASDAQ OMX Europe, in addition to NASDAQ OMX Commodities and NASDAQ OMX Armenia. According to Trefis estimates,
European Cash & Options trading and European Listings account for over 2% of the company's value. However this doesn't include the market data, market technology and access services provided to European customers.
Economic recovery to drive volumes
Over the past couple of years, market volatility and uncertainty regarding the capital markets dampened investor confidence and led to lower trading volumes and a deterioration in the financial condition of listed companies. It also impacted the number of new listings on the exchange. As economic conditions gradually improve, we expect that these trends will reverse, and listings and volumes will increase going forward.
Intense competition among exchanges
There is intense competition among exchange operators such as IntercontinentalExchange Group (which owns NYSE), NASDAQ OMX Group and CME Group, for trading volumes, listings and technology services customers. Newer entrants have tried to offer discounted fees in order to attract volumes, which could force NASDAQ to follow suit. This could impact revenues and in turn margins.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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