Shares of Nasdaq (NDAQ) have flown under the radar so far in 2020, despite the fact that the company — which is home to some of the biggest names in tech — is trading at all-time highs, delivering some 20% year-to-date gains.
Since the pandemic-induced indiscriminate market selloff that began in late March, NDAQ stock has surged as much as 80%, rising from a low of $72 to a recent high of $129. The reason for the outperformance could be tied to the fact that the company’s tech-heavy weighting of stocks are seemed not only immune to the COVID-19, but are (and will continue to be) the main beneficiaries of the stay-at-home and work-from-home trends. Can Nasdaq’s gain continue?
The exchange operator and fintech company is set to report second quarter fiscal 2020 earnings results before the opening bell Wednesday. The company’s successful earnings track record has been driven by not only its leadership position in high-profile IPOs, but also its ability make strategic acquisitions which has yielded consistent revenues all while reducing long-term debt. Nasdaq’s winning streak is likely to continue this quarter, evidenced by the high trading revenues seen from the likes Goldman’s Sachs (GS) and Morgan Stanley (MS).
These strong trading trends bode well for Nasdaq, which acts as a clearing house for stocks and derivatives transactions — a business that accounts for some 40% of its revenue. For the stock to keep rising, on Wednesday investors will want to see a sustained rise not only in the company’s trading volumes, but also for the management to provide confident guidance.
In the three months that ended June, the New York-based company is expected to deliver an 18% increase in earnings of $1.44 per share on revenue of $620.88 million. This compares to the year-ago quarter when earnings were $1.22 per share on $623 million in revenue. For the full year, ending in December, earnings are projected to rise 13% to $5.67 per share, while full-year revenue of the $2.71 billion would rise 7% year over year.
Though known for its equity exchange business, Nasdaq’s business is well diversified. As noted, while the Market Services segment accounts for roughly 40% of revenue, its Corporate Services business, which offers listing services and investor relations products, makes up about 20% of total revenue, while the Information Services segment, which provides and distributes exchange data, makes up about 24% of the revenue.
Each of these collective businesses, which presents a significant moat, helped drove Q1 revenue 10% higher to $701 million, topping Street estimates of $692 million. Notably, the Market Services segment delivered not only an impressive 21% surge in revenues, but also a 32% growth in profits, driven by historic trading volumes during the quarter.
On Wednesday investors will want to see continued growth in these metrics, along with growth in both volume growth and listings. Elsewhere, the Street will also listen for management's commentary about how much revenue and profits the company expects to generate in the second half of the year.