Up 7% YTD, What To Expect From NASDAQ Stock?

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NASDAQ stock (NASDAQ: NDAQ) has gained 7% YTD as compared to an 11% rise in the S&P500 index. Further, at its current price of $62 per share, it is almost 7% below its fair value of $67 – Trefis’ estimate for NASDAQ’s valuation. 

Amid the current financial backdrop, NDAQ stock has shown strong gains of 35% from levels of $45 in early January 2021 to around $60 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. However, the increase in NDAQ stock has been far from consistent. Returns for the stock were 58% in 2021, -12% in 2022, and -5% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that NDAQ underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could NDAQ face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The exchange posted mixed results in the first quarter of 2024, with revenues beating the consensus but earnings missing the mark. It reported total revenues of $1.67 billion – up 9% y-o-y, which translated into net revenues (revenues less transaction-based expenses) of $1.12 billion (up 22%). The growth was mainly driven by a 15% gain in the capital access platform followed by a 71% jump in the financial technology segment, partially offset by a 10% decline in the market services category (trading-based revenues). On the cost front, total operating expenses as a % of revenues witnessed an unfavorable increase in the quarter, leading to a marginal drop in the operating income to $410 million. Overall, adjusted net income declined 23% y-o-y to $234 million.

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The company’s revenue decreased by 3% year-over-year to $6.06 billion in FY 2023. However, the net revenues increased by 9% year-over-year to $3.9 billion. This increase in net revenues was due to lower transaction rebates, brokerage, clearance, and exchange fees. While the capital access platform and financial technology segments experienced growth, market services revenues (excluding transaction-based expenses) suffered due to a drop in U.S. cash equities and European cash equities trading volumes. Total operating expenses increased by 15% year-over-year. As a result, adjusted net income decreased by 6% year-over-year to $1.06 billion.

Moving forward, we expect NASDAQ’s revenues (total revenues) to touch $6.96 billion for the full year 2024. Additionally, the adjusted net income is likely to remain around the previous year’s level. It will result in a GAAP EPS figure of $2.41, which coupled with a P/E multiple of just below 28x, will lead to a valuation of $67.

 Returns May 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 NDAQ Return 4% 7% 178%
 S&P 500 Return 5% 11% 137%
 Trefis Reinforced Value Portfolio 6% 6% 650%

[1] Returns as of 5/17/2024
[2] Cumulative total returns since the end of 2016

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