August 9, 2024
Nasdaq, Inc. is a global technology company serving corporate clients, investment managers, banks, brokers, and exchange operators as they navigate and interact with the global capital markets and the financial system. The Company manages, operates, and provides its products and services in three business segments: Capital Access Platforms, Financial Technology and Market Services. The Company's Capital Access Platforms segment includes Data & Listing Services, Index and Workflow & Insights. The Company's Financial Technology segment comprises of Financial Crime Management Technology, Regulatory Technology and Capital Markets Technology solutions. The Company's Market Services segment operates multiple exchanges and other marketplace facilities across several asset classes, including derivatives, commodities, cash equity, debt, structured products, and exchange-traded products (ETPs). The Market Services segment also provides clearing, settlement, and central depository services.
NDAQ operates one of the most prominent stock exchanges globally and provides a range of financial products and services, including market technology, data analytics, and clearing house solutions. Despite facing market volatility and macroeconomic headwinds, Nasdaq's diversified revenue streams, continuous growth in market services, and strategic acquisitions signal the company well for future growth. At the same time, technical indicators suggest a favorable entry point for long-term investors.
Nasdaq operates within the Financial Services sector and competes with other global exchanges, such as Intercontinental Exchange (ICE) and CME Group (CME). The broader financial services industry has experienced mixed performance, largely due to macroeconomic uncertainties such as rising interest rates, inflation, and potential recession risks. However, within the sector, exchanges and market services have remained resilient due to sustained trading activity, even amid volatility.
Stock Comparison (YTD Performance):
Nasdaq (NDAQ): +5.3% YTD
Intercontinental Exchange (ICE): +9.1% YTD
CME Group (CME): +7.8% YTD
While NDAQ's performance slightly lags its competitors, the company’s year-over-year revenue growth of 4% suggests a stable upward trend. Nasdaq’s diversified revenue streams, which include listings, information
services, and technology solutions, are less sensitive to trading volume declines than its competitors, making
it a relatively safer play.
Diversification of Revenue Streams: Nasdaq’s business model has become increasingly diversified. While historically reliant on market services (trading and listing fees), the company now generates approximately 70% of its revenues from non-trading sources, including analytics, data services, and market technology solutions. This makes the company less susceptible to market volatility.
Market Technology: Nasdaq’s technology solutions are used by over 130 market operators globally. This segment grew by 7% year-over-year in supported by increasing demand for trading platforms and technology infrastructure from international exchanges.
Expansion into ESG and Indexing Services: Nasdaq’s ESG initiatives and indexing business are crucial for future growth. Nasdaq manages more than 450 indices globally, including the popular Nasdaq-100, with assets under management in Nasdaq index-linked products surpassing $380 billion. Nasdaq’s ESG product suite includes tools for assessing corporate governance and sustainability practices, addressing the growing demand from investors focused on environmental and social factors.
Financials:Nasdaq's revenue for 2023 period was $5.8 billion, with a gross profit of $3.6 billion and an operating income of $1.93 billion. The net income stood at $1.1 billion, reflecting the company's ability to generate significant profits from its diversified revenue streams. The company's asset utilization ratio of 18.77% indicates that Nasdaq is efficient in generating revenue from its assets. Nasdaq also had a 29% increase in Index business revenue and a 17% growth in SaaS revenue. The integration of the Adenza acquisition has also contributed significantly to the company's performance, with debt paydown progressing faster than planned and leverage reduced to 3.9x.
Stock Valuation: Nasdaq is trading at a P/E ratio of approximately 39.13x. This is slightly above its sector but justified by its higher growth potential due to technological advancements and acquisitions. Despite the high debt levels, Nasdaq has a cash and short-term investments balance of $590 million, which, while not out of the ordinary, is sufficient to cover short-term obligations.
My investment strategy for NDAQ focuses on capitalizing on medium-long term price appreciation.
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Nasdaq driven by its excellent revenue model coupled with the company’s strong financials is another stock set for sustained growth mostly through its non-trading revenue sections and advancements in its technology. I believe that given the stock’s current valuation and strong future prospects, NDAQ will see consistent forward growth.
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