Key Takeaways From NASDAQ’s Q1

by Trefis Team
Nasdaq OMX Group
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After an impressive performance through 2017, NASDAQ (NASDAQ:NDAQ) continued its strong performance in the first quarter of 2018, with revenue of $666 million up 15% over the same period last year to start the year on a high note. The company’s focus on growing its non-trading lines of business has helped it perform strongly despite strong competition from other exchanges, leading to somewhat restricted trading volume growth. The rise in non-trading business segments – including Corporate Services, 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 favorable trading conditions and foreign exchange benefits. The company’s operating margins declined by nearly 2 percentage points, primarily due to increased compensation and benefits.

We have a $118 price estimate for NASDAQ’s stock, which is significantly ahead of the current market price. We expect nearly 2% growth in the company’s overall revenue for the year 2018. We have created an interactive dashboard where you can change the company’s forecast for revenue, margins, and other key drivers to gauge how they would impact its expected results and valuation.

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

NASDAQ’s non-trading business lines generate over 60% of the company’s overall revenues. These businesses grew by nearly 15% in the first quarter. The growth in the Information Services segment was supported by the acquisition of eVestment and increased adoption of its in-house products such as IR Insight and Influencer. The Market Technology segment grew organically due to increased uptake of software licensing and support, surveillance, and advisory. Increased demand for data and technology-related products and services is likely to sustain the growth momentum for these segments.

Market Services Has Grown Due To Acquisitions

The company generates about 38% of its revenue from Market Services, and the segment has grown marginally year on year. The growth due to acquisitions and improvement in overall trading environment was partially offset by the decline in revenue capture owing to increased competition. The equity options volumes picked up pace following the acquisition of ISE, which gave NASDAQ a 40% market share in the U.S. equity options market. However, a decline in revenue per contract, driven by stiff competition, offset the overall revenue growth. Cash equities and fixed income revenue saw partial growth due to the positive impact of foreign exchange rates on European trading.


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