What To Watch For In NASDAQ’s Q4 Earnings

by Trefis Team
Nasdaq OMX Group
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NASDAQ (NASDAQ: NDAQ) has had a fairly strong 2018, as the exchange managed to grow its revenue by nearly 6% in the first nine months of the year, and we expect the growth momentum to continue when it announces its Q4 earnings on January 30. We expect much of this growth to be driven by non-trading revenue streams. These revenues have seen a solid performance throughout the year, mainly due to increased demand for the company’s in-house products, coupled with the eVestment acquisition, and we expect this trend to spill over into Q4. Additionally, increased volatility led to better than expected trading volumes in both the U.S. and European markets. However, fluctuating revenue per contract should slightly dampen trading revenues in Q4. Consequently, we forecast around 3-4% growth in NASDAQ’s overall revenues for the full year, and expect that the Q4 results will reflect similar growth.

Our price estimate for Nasdaq’s stock stands at $94, which is higher than the current market price. We have also created an interactive dashboard which outlines what to expect from Nasdaq’s full-year results. You can modify the key value drivers to see how they would impact the company’s revenues and bottom line. Below we discuss some of the key factors that are likely to impact the company’s earnings.

Acquisitions, Proprietary Products To Drive Non-Trading Segment

Non-trading businesses – which include data, technology and listing services – generates nearly 60% of company’s overall revenue and have grown consistently through the first nine months of 2018. This was largely due to organic growth from higher assets under management, the acquisition of eVestment and increased adoption of its proprietary products such as IR Insight and Influencer. We expect this trend to continue as a result of greater demand for data and technology-related products and services. Further, this should also drive increased adoption of the company’s in-house products in the near term. In addition, we expect the eVestment acquisition to not only bolster the company’s Market Technology division, but also attract more institutional investors. Consequently, we expect this segment to drive much of the company’s growth in Q4 as well as subsequent quarters.

Increased Competition Likely To Dampen Trading Segment

The Market Services segment, which contributes around 37% of NASDAQ’s overall revenues, grew by under 8% in the previous three quarters. The decent growth in this segment was due to acquisitions as well as improvement in the overall trading environment, partially offset by the decline in revenue capture owing to increased competition. With around 39% market share in the U.S., equity volumes increased by about 21% year over year in Q4. However, declining revenue per contract in the U.S. cash equity and fixed income asset and European equity options 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 relatively limited beyond equity products.

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