What To Watch For In NASDAQ’s Q3 Earnings
NASDAQ (NASDAQ: NDAQ) has had a robust first half of 2018, as the exchange managed to grow its revenue by 11%, and we expect the growth momentum to continue when it announces its Q3 earnings on October 25. Consensus market estimates call for the company to report revenue of $606 million and adjusted EPS of $1.14. The revenues from non-trading segments grew at a rapid pace, aided by the acquisitions of Marketwired and Boardvantage in 2016, as well as enhanced data and technology offerings. We expect the non-trading segment to sustain growth momentum owing to increased demand for technological and data products, and its acquisition of eVestment should provide decent near term growth. Consequently, we forecast around 3-4% growth in NASDAQ’s non-trading revenues for the full year, and expect that the Q3 results will reflect similar growth.
We have a $97 price estimate for NASDAQ’s stock, which is significantly ahead of the current market price. We have also created an interactive dashboard on Can Non-Trading Revenue Drive Growth For Nasdaq In Q3, which shows our forecasts and estimates for the company; you can modify the key value drivers to see how they impact the company’s revenues, bottom line, and valuation.
Non-trading businesses – which include information, technology and listing services, and account for over 63% of the company’s overall revenue – should likely drive growth, with increased demand for data and technology-related products and services. Further, NASDAQ’s in-house products such as IR Insights and Influencer have attracted a good number of customers since launch in 2016, and we expect increased adoption in the near term as well. In addition, we expect the eVestment acquisition should bolster its Market Technology division and attract more institutional investors.
The Market Services division, which contributes around 36% of NASDAQ’s overall revenues, grew by over 10% in the first half of 2018. The acquisition of ISE has secured NASDAQ the leading position in equity options trading. With around a 40% market share in the U.S., volumes increased by nearly 16% year over year in the first half of 2018. However, declining market shares in the cash equity and fixed income asset classes will likely offset the growth in trading commissions and provide headwinds to the top-line growth. This is as a result of tough competition from exchanges such as IEX, and the fact that the company’s offerings remain limited to equity products.
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