NASDAQ Earnings: Top-line Growth Propelled By Recovery In Trading Volumes And Increased Adoptions of Technology Products

February 2nd, 2017 by Trefis Team
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NASDAQ‘s (NASDAQ:NDAQ) strong performance continued in Q4 2016, as the company reported nearly 12% growth in revenue—a roughly five percentage point increase in its growth rate over the prior three quarters. The revenues from the trading business, after remaining subdued for most of the year, grew nearly 12% in the fourth quarter. This was driven by increased volatility in the stock market resulting from the recently concluded U.S. presidential elections and improved macro factors such as GDP and employment rate.  Additionally, the acquisition of ISE in June contributed significantly to the growth in the equity options trading volumes. However, declining market share continued to offset the growth in trading commissions.  This is due to tough competition from new exchanges such as IEX, and the fact that  the company’s offerings remain limited to equity products. The revenues from non-trading segements continued to grow at a rapid pace for the quarter and full year, aided by the acquisitions of Marketwired and Boardvantage and enhanced data and technology offerings.

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Surge In Trading Volumes Was Supported By Increased Volatility And IEX Acquisition

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The market services segment, which contributed around 37% of Nasdaq’s overall revenues in the fourth quarter, grew around 4% in the first nine months of 2016. The trading volumes recovered in the last quarter and this boosted the segment’s revenues from the segment. The acquisition of ISE secured NASDAQ, the leading position in equity options trading. With around 40% market share in the U.S., the revenue from this asset class went up by 42% year over year.

Cash equity and fixed income trading commissions, which declined in the first three quarters of the year in comparison to the prior year, remained flat in the fourth quarter. This can be partially attributed to the acquisition of Nasdaq CXC.  Increased trading in the wake of the election and improved economic conditions in the U.S. have propelled the growth in trading commissions for the exchange.

With the continued volatility in the near term, we expect the growth momentum to spill into the year ahead.

Non-Trading Businesses Continued Growth Due To Acquisitions And Proprietary Products

Nasdaq’s non-trading business lines, including information, technology and listing services, generate around 40% of the overall revenues. These businesses, which grew over 10% in the first nine months of 2016, grew by over 12% in the fourth quarter. The growth in Information services segment was supported by increased adoption of its in-house products such as IR Insights and Influencer and revenues from the acquisition of ISE. Nasdaq has continued to be favored for listing new companies. Over 73% of the U.S. IPOs in 2016, were listed on Nasdaq. This along with the company’s acquisitions drove the 18% growth in Corporate services revenue.

Increased demand for data and technology-related products and services is likely to sustain the growth momentum for these segments. The company indicates around 5% growth in these businesses for the year ahead.

Please refer to the full Trefis analysis for Nasdaq

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