Nasdaq’s Non-Trading Segments Will Drive Profit Growth In The Near Future

Nasdaq (NASDAQ: NDAQ) released its first quarter results late last week with net revenues declining by 5% year-on-year to $634 million. The company managed to beat earnings expectations for the period, though, as operating expenses shrank almost 9% year-on-year to $359 million. The top line benefited the most from a 10% increase in Nasdaq’s non-trading business thanks to a strong performance by its Information Services and Market Technology segments.

The Trefis price estimate for Nasdaq stands at $93 per share, which is roughly around the current market price. You can view our interactive dashboard on How Has Nasdaq Fared In Recent Quarters? to observe quarterly revenue trends and modify segment revenues to gauge the impact on the stock price. Additionally, you can see more of our financial services data here.

Top Line Driven by Non-Trading Segments

• Market Services encompass the company’s core trading segments and contribute around 37% of Nasdaq’s revenues. However, revenues for the segment dropped 7% year-on-year to $233 million due to lower industry trading volumes. Nasdaq operates six options exchanges and three cash equity exchanges in the U.S. with a market share of 38% and 49%, respectively. The market share has remained fairly stable over the last few quarters, and is unlikely to change much over the rest of the year. In addition to trading revenues, Nasdaq also earns from trade management services such as network access to Nasdaq’s data centers through advanced technologies.
• Corporate Services contribute around 20% of the net revenues and reported $131 million this quarter, almost flat over the prior year period. Nasdaq offers listing services and corporate solutions under this segment which are availed by companies undergoing IPOs to get listed and manage investor relations. We expect these revenues to increase by roughly 4% compared to the figure in 2018.
• Information Services contribute around 30% of the net revenues and reported strong growth of 11% over the prior year period. The segment’s revenues came in at $193 million, driven by investment and data analytics services. Under this segment, Nasdaq offers market data, licensed Nasdaq indices and investment analysis services to financial institutions, asset managers, brokers, etc. Growth in this segment is expected to be subdued over the rest of the year, though, because of which we forecast revenues to remain largely around the level seen in 2018.
• Market Technology reported the strongest growth of 28% this quarter, although the contribution of this segment to the top line remains small at less than 15%. Of the $17 million growth over the prior year period, $10 million came as an impact of Cinnober’s acquisition. Nasdaq offers trading and settlement technology solutions to exchanges, banks, brokers, etc, as a technology provider.

The total operating expenses decreased by 9% to $359 million this quarter, leading to a 5% improvement in operating margin sequentially. On the non-GAAP basis, a sharp drop was observed in compensation and benefits, due to the divestiture of the Public Relations Solutions and Digital Media Services. With the acquisition of Cinnober, offer for Oslo Bors and divestiture of its risk and compliance businesses, the company’s management has done well to allocate capital among growing segments.

Trefis has a price estimate of $93 per share for Nasdaq’s stock. The value is based on the expectation that the company will report an EPS of $5.19 for full-year 2019, and uses a forward P/E multiple estimate of 18.

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