Non-Trading Businesses Should Continue To Drive Growth For NASDAQ

by Trefis Team
Nasdaq OMX Group
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After an impressive performance through the first three quarters of 2018, NASDAQ (NASDAQ:NDAQ) sustained its growth momentum in the fourth quarter, with revenue of $645 million up 2% over the same period last year to end the year on a high note. The company’s focus on growing its non-trading lines of business has helped it perform strongly due to increased demand for the company’s in-house products. 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 increased trading volumes – as a result of greater volatility, in equity derivatives and cash equity trading. Despite the solid growth across the business segment, the company’s operating margins fell by nearly 70 basis points, primarily due to elevated investment spend. We expect the non-trading segment to maintain growth momentum as a result of multiple acquisitions and improved need for technological and data products. Below we provide a brief overview of the company’s results and what lies ahead.

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 in 2019. 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.

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

NASDAQ’s non-trading business lines generated over 61% of the company’s overall revenues. These businesses grew by over 10% in the fourth quarter. The growth in this segment was supported by the increased adoption of its in-house products such as IR Insight and Influencer, organic growth from higher assets under management, the eVestment acquisition, as well as 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. Further, we expect the eVestment acquisition to attract more institutional investors and consequently drive growth for its Market Technology division. In addition, the acquisition of Quandl should further bolster its data services business, while the acquisition of Cinnober should further strengthen its foothold in the technology and analytics space, and better equip Nasdaq in the fast-growing crypto space. Consequently, we expect the segment to grow by nearly 4-5% to $1.7 billion in 2019.

Strategic Initiatives To Drive Market Services 

The Market Services segment, which contributes around 39% of NASDAQ’s overall revenues, grew by over 12% in Q4. The solid growth in this segment was largely due to a significant uptick in trading volumes as a result of increased volatility, partially offset by the decline in revenue capture owing to increased competition. Its equity options volumes picked up pace following the increased volatility, which gave NASDAQ a 39% market share in the U.S. equity options market – down by 3 percentage points over the same period last year, owing to increased competition.

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