Nasdaq Year In Review: Growth In Non-Trading Segment Drives Otherwise Sluggish Performance From Trading Segment

December 19th, 2016 by Trefis Team
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The year 2016 has not been very impressive for trading as investors exhibited incliniation towards risk-free assets amid deteriorating financial conditions during the first half of the year. However, NASDAQ (NASDAQ:NDAQ) still managed to grow its revenue by 7% in the first 9 months of 2016, with stock gaining nearly 23% since the beginning of the year. The company’s focus on growing its non-trading segment, along with growing demand for data-related products, have helped it remain resilient in challenging conditions. The trading volumes saw a surge in Q2 due to increased volatility from Brexit and the acquisition of ISE, which led to a significant increase in both the exchange’s market share in equity derivatives and the customer base requiring access and connectivity. However, the overall volumes have faced headwinds due to loss of market share and an industry-wide decline.

Nasdaq’s Focus On Non-Trading Segment Has Been Paying Off

Nasdaq generates about 40% of its revenues from information, technology and listing services. These businesses have overall grown by 10% year to date and around 5% annually over the past couple of years. The company launched new products this year, including IR Insights, which is capable of incorporating news, recommendations, and trackers on a single platform.  A second noteworthy new product is Nasdaq Influencers, wherein marketing professionals from different companies can connect with veterans in their industry to promote their brand and share insights and recommendations. Additionally the company continued to improvise on its existing technological platform to provide customers with a more efficient product, which could possibly create more earning opportunities. The acquisitions of Dorsey Wright and Chi-X Canada further strengthened Nasdaq’s information segments capabilities. Additionally, its technology solutions business gained from the acquisitions of Marketwired, the leading global provider of news distribution services and analytics, and Broadvantage, which has furthered the uptake of software products.

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With its product offerings restricted to equities and the markets not doing well for over a year, it is reasonable to assume that the company is possibly focusing more on the non-trading segment for boosting its top-line. Moreover, the investors seem to have taken this positively with the observed increase in stock prices, in spite of the reduction in trading volumes, which is the major source of revenue for the company.

Market Services Has Shown Slight Under The Influence of Acquisitions And Brexit

The company generates about  60% of its revenue from Market Services, and this segment has grown by 6% year to date. The growth was relatively less because of the decline in trading volumes resulting from unfavorable economic conditions and increased competition. Investors have possibly shifted to exchanges with a wider range of financial product offerings with more earning opportunities. Furthermore, the recent launch of Investors’ Exchange is likely to be a threat for the company’s equity business.

The beginning of the year saw an improvement in cash equity volumes, with the company expandingits  footprint in North America through the acquisition of Chi-X Canada. However, the volumes remained low later in the year due to an industry-wide decline in cash equity volumes, as well as the company’s loss of market share.

The equity options volumes picked up pace, post the acquisition of ISE, which gave Nasdaq a massive 40% market share in the U.S. equity options market. The second quarter remained favorable for the company with the news of Brexit leading to a sudden surge in trading volumes in comparison to the rest of the year. However the continuous loss of market share continues to pose a problem for the company.

We expect the volumes to pick up in the current quarter with the recently concluded U.S. presidential elections adding to the volatility in the market and investors assessing the impact of Donald Trump’s victory on various industries.

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