NASDAQ is an exchange holding company that 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, including Equity Derivative Trading and Clearing, Cash Equity Trading, FICC, and Trade Management Services businesses. Due to the coronavirus pandemic and economic uncertainty, securities markets are witnessing high trading activity. This, in turn, means that the exchange would generate more revenue in clearing and transaction fees. While the company’s results for each of the four quarters of 2020 were on similar lines, the same trend followed FY2021.
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.
On December 31, 2021, the NASDAQ Stock Market had 5,413 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 20% 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 around 4% 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 and a 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 these trends to sustain in the 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 to attract volumes, which could force NASDAQ to follow suit. This could impact revenues and, in turn, margins.