Nasdaq’s 2017 Performance To Be Driven By The Sustained Growth In Its Non-Trading Business Lines
NASDAQ (NASDAQ:NDAQ) fared better in 2016 than 2015, despite loss of market share and its offering being limited mostly to equity trading in the U.S. and Europe. The company focused on growing its non-trading lines of business with a series of acquisitions in technology and data services. Furthermore, the company launched of IR Insights and NASDAQ Influencers, a reflection of the company’s efforts in innovating new products to meet customer demand. We believe Nasdaq’s focus on growing its non-trading segment, along with growing demand for data-related products, will boost its top-line in 2017. The acquisition of ISE has helped NASDAQ gain leading position ( ~40% market share) in the U.S. equity options market. With the improvement in the U.S. financial conditions and added volatility from the recently concluded presidential elections and its results, we are hopeful of growth in trading commissions from this segment. However, the continuous loss in market share across both U.S. and Europe in the cash equity segment could be a cause of concern
Non-Trading Business Lines Will Be Crucial For Growth
Nasdaq’s non-trading business lines, including information, technology and listing services, generate around 40% of the overall revenues. These businesses, on a whole, grew over 10% in the first 9 months of 2016, which exceeded the overall revenue growth of 6%. This can be attributed to acquisitions and in-house products. The acquisitions of Dorsey Wright and Chi-X Canada will strengthen Nasdaq’s information segment’s capabilities. Its technology solutions business will gain from the acquisitions of Marketwired, the leading global provider of news distribution services and analytics, and Broadvantage, which will further the uptake of software products. We estimate around 5% revenue growth in these segments and might increase our growth rate estimate post the earnings update from the company, depending on the results.
Market Services Segment Could Revive
The market services segment contributes around 60% of Nasdaq’s overall revenues grew around 4% in the first nine months of 2016. The exchange’s cash equity volumes continued to suffer due to competition from newly formed exchanges and an industry-wide decline in trading volumes resulting from unfavorable macro-conditions in the U.S. and Europe. We believe there will be improvement in market conditions and increased volatility will contribute to around 8% growth in trading volumes and related revenues in 2017. However, the market share gain by newer exchanges like Investors’ Exchange continues to pose a threat to NASDAQ’s growth.
The acquisition of ISE has secured NASDAQ the leading position in equity options trading. We expect the extended lead from this acquisition to be an added advantage to the exchange in the current year, with the industry wide improvement in trading volumes due to increased volatility in the stock market.
The news around Brexit did partially lead to an increase in the European trading volumes last year. However, amid subdued macro-conditions and political turmoil, the investors had stayed away from trading in the prior year. However, with the recovery in market conditions, we are hopeful of revival in trading volumes across the country.
Please refer to the full Trefis analysis for Nasdaq
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