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NASDAQ is a holding company, which engages in trading, clearing, exchange technology, regulatory, securities listing, information and public & private company services. It drives more than 62% of its revenues from market services which include Equity Derivative Trading and Clearing, Cash Equity Trading, FICC and Trade Management Services businesses. Due to ongoing coronavirus pandemic and economic uncertainty, securities markets are witnessing high trading activity. This, in turn, means that the exchange would generate more revenue in terms of clearing and transaction fees. The slight drop in the company’s stock price is due to the negative market sentiment and fears of the economic slowdown. While the company’s result for the first three quarters of 2020 were on the similar lines, we believe NASDAQ’s Q4 results will confirm this reality with an increase in market services revenues.
Below are some key drivers of NASDAQ's value with potential upside or downside to our price estimate for the company's stock.
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.
As of December 31, 2018, the NASDAQ Stock Market had 4,077 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 under 21% 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 1.5% of the company's value. However this doesn't include the market data, market technology and access services provided to European customers.
Over the past couple of years, recovery in economic conditions, coupled positive outlook of the capital markets have heightened investor confidence and improved the financial condition of listed companies. Consequently, the company saw strong growth in the number of new listings on the exchange. Further, enhanced volatility has resulted in greater trading volumes. As economic conditions continue to improve, we expect that these trends to sustain in near term and drive growth in trading volumes, and listings.
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.