How Important Is Nasdaq’s Market Technology Business To Its Stock?

February 10th, 2020 by Trefis Team
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Nasdaq (NASDAQ: NDAQ) reported $4.2 billion in total revenues for the full year 2019, declining by 0.4% (y-o-y) due to low volatility in cash equities and equity options market. However, net revenues remained relatively stable, thanks to 10% (y-o-y) growth in recurring revenues from non-trading segments. Notably, Nasdaq’s technology solutions business observed a 25%(y-o-y) growth, driven by the company’s acquisition of Cinnober even as it continued to grow deal volumes. Trefis highlights the key sources of Nasdaq’s revenues in an interactive dashboard along with our projections for 2020. While the Market Technology segment accounts for less than 10% of Nasdaq’s top line as of now, the segment can potentially grow at an annual rate of up to 10% over the coming years to double in size by 2025.

A Quick Look At Nasdaq’ Revenues

Nasdaq reported $4.2 billion in Total Revenues for full-year 2019. It includes four segments:

  • Market Services: $2.6 billion in FY2019 (62% of Total Revenues). It includes income from cash equity trading, equity derivatives trading, fixed income trading, and trade management services businesses.
  • Corporate Services: $496 million in FY2019 (12% of Total Revenues). It includes income from listing service and corporate solutions businesses. Investor relations management tools, corporate governance tools, regulatory compliance tools are key products offered under this segment.
  • Information Services: $779 million in FY2019 (18% of Total Revenues). The company offers market data, licensed Nasdaq indices, and investment analysis services to financial institutions, asset managers, and brokers under this segment.
  • Market Technology: $338 million in FY2019 (8% of Total Revenues). The company offers trading and settlement technology solutions to exchanges, banks, brokers, etc., as a technology provider.
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Non-trading segments are key drivers of Nasdaq’s top line

  • Though Nasdaq is the second-largest stock exchange in the world with a market capitalization of nearly $11.1 billion, it generates 65% of its net revenues from non-trading segments such as corporate services, information services, and market technology.
  • Since 2015, the market services segment (e-trading business) has added $141 million, while the non-trading segments have added $304 million to the company’s net revenue growth.
  • In 2019, Market Technology and Information Services segments observed growths of 25% and 9% (y-o-y), respectively.
  • Per recent filings, Nasdaq’s non-trading segments are likely to grow at a 5-7% rate in the medium term.

Market Technology’s order intake surged during the fourth quarter

  • After acquiring Quandl and RedQuarry, and expanding its information services business, Nasdaq acquired Cinnober in January 2019.
  • The acquisition led to a 25% surge in Market Technology revenues, which had remained relatively stable in terms of revenues over the previous few years.
  • The Market Technology segment provides trading technology solutions to exchanges, regulators, brokers, banks, etc.
  • The segment order intake increased from $62 million in Q3’19 to $204 million in Q4’19.
  • Moreover, Airbus’ wholly-owned subsidiary Skytra selected Nasdaq as a technology provider for its upcoming derivatives trading venue for the air travel industry to hedge revenue risk.

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