A Look Back At NASDAQ’s Performance In 2017

December 18th, 2017 by Trefis Team
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NASDAQ (NASDAQ:NDAQ) has had a fairly strong 2017, as the exchange managed to grow its revenue by 7% in the first 9 months of the year, and its stock price has gained nearly 17% since the beginning of the year. This is despite the fact that overall U.S. equity trading (cash and options) volumes were largely flat in comparison to the year-ago comparable period. NASDAQ’s focus on growing its non-trading segments, along with growing demand for data-related products, have helped it remain resilient in somewhat challenging conditions. The growth in these business segments – including Corporate Solutions, Market Technology and Information Services – is attributable to both organic growth as well as acquisitions. The Market Services segment saw revenue growth primarily due to acquisitions, and otherwise would have seen a decline. Meanwhile, NASDAQ’s operating margins improved by nearly 5 percentage points, primarily due to non-trading business margin expansion, as well as restructuring expenses in the prior year period.

We have a $92 price estimate for NASDAQ’s stock, which is significantly ahead of the current market price.

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Focus On Non-Trading Segments Has Been Paying Off

NASDAQ generates about 65% of its revenues from Information, Technology and Listing services. These businesses have grown by 6% overall year-to-date, and around 5% annually over the past three years. The company launched several new products in the past few years, including IR Insight, which incorporates news, recommendations, and trackers on a single platform.  A second noteworthy product is Nasdaq Influencers, wherein marketing professionals from different companies can connect with industry peers to promote their brands and share insights and recommendations. This contributed to the Information Services segment’s strong performance. Meanwhile, the Market Technology segment grew organically due to increased uptake of software licensing and support, surveillance, and advisory offerings. Increased demand for data and technology-related products and services is likely to continue in the near term, and should help sustain the growth momentum for these segments.

Market Services Has Shown Improvement Under The Influence of Acquisitions

The company generates about 35% of its revenue from Market Services, and this segment has grown by 9% year to date. Trade Management services grew due to an increase in customer demand for third-party connectivity, co-location, and test facilities. Equity options volumes picked up in pace following the acquisition of ISE, which gave NASDAQ a 42% market share in the U.S. equity options market. The overall growth was relatively lower because of the decline in cash equity trading volumes, resulting from unfavorable economic conditions and increased competition.

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