Nasdaq’s Q3 Revenue Growth Fuelled By Non-Trading Segments

NASDAQ OMX Group (NASDAQ:NDAQ) reported impressive Q3 earnings, primarily due to the strong performance of its Technology Services segment. Around 40% of the growth in the segment was organic, which was due to higher uptake of software products offered. The rest can be attributed to the recent acquisitions of Marketwired and Boardvantage. Increased demand for data-related products has propelled the growth in information services revenue. The entire non-trading segment has grown organically at 5% annually for more than 3 years. Going forward, we expect the business to sustain this growth, as the company cashes in on demand for tech-enhanced platforms and efficient information services among investors.

The company’s Market Services segment showed a slight growth in the wake of the ISE acquisition, which led to a significant increase in both the exchange’s market share in equity derivatives and the customer base requiring access and connectivity. Otherwise, there was a significant drop in trading volumes of cash equities and fixed income securities, owing to uncertain macro-conditions in the recent past. However, with the possibility of improvement in these conditions, the trading volumes are likely to improve in the coming quarters.

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Non-Trading Segments Grow Phenomenally Under Increased Customer Demand

The revenues from information services and technology support together contribute about 65% of the overall revenue. We saw 16% and 5% year-to-date growth in technology solutions and information services revenues, respectively. The company has continued to innovate new products and improvise on existing services to provide customers with more earning opportunities. It has recently launched Nasdaq Influencers, a platform for marketing professionals from different companies to connect with veterans in their industry to promote their brand and share insights and recommendations. Additionally, the company’s IR Insight platform has attracted a lot of customer attention since its launch in early 2016, with its advanced capabilites of incorporating news,recommendations, trackers, etc., on a single platform. Furthermore, its acquisitions have strengthened its technological and information services capabilities. With increased demand for these services, continued growth in these segments is likely to make the exchange  a preferred choice over the near and long term.

Trading Volumes Suffer Due to Unfavorable Macro Conditions

The company’s acquisition of ISE in the first half of the year, led to a massive increase in its market share for equity options in the U.S. and hence, trading volumes. However, the industry-wide trading volumes have continued to decline through the year in both U.S. and Europe.

As far as cash equities are concerned, unlike the first half of the year, the company saw decline its revenues. This is primarily attributed to macroeconomic uncertainty in Europe and stiff competition in the U.S., which led to a loss of market share. Hence, inspite of an industry wide improvement in volumes, NASDAQ saw decline in its volumes.

Fixed income volumes have continued to decline miserably across the U.S. and Europe for over a year now. Low returns, coupled with stringent regulations, have weighed heavily on the fixed income trading volumes, causing reduced participation from big players. Accordingly, we expect volume declines to continue going forward.

We believe that there shall be an impressive improvement in the U.S. macro conditions in the near term. This will likely cause the cash equity and equity options trading volumes to recover. However,we are not expecting the European trading volumes to increase anytime soon amid unfavourable political conditions.

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