Earnings

Nasdaq (NDAQ) 3rd Quarter Earnings: What to Expect

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Shares of Nasdaq (NDAQ) continue to fly under the radar in 2020, despite significantly out-performing the broader financial sector, particularly since the pandemic-induced market selloff that began in late March. During that period, NDAQ stock has surged as much as 95%, rising from a low of $72 to a recent high of $138.

As it stands, Nasdaq stock is up roughly 20% year to date. And not only has it crushed the performance of other major exchanges, its stock has powered through the volatility significantly better than the S&P Financial Select SPDR ETF (XLF), which is down about 20%. But can Nasdaq’s strong outperformance continue? The fintech company and exchange operator — which is home to some of the biggest names in tech — will report third quarter fiscal 2020 earnings results before the opening bell Wednesday.

The reason for the company’s strong outperformance has been due to a combination of factors. Aside from the fact it operates a highly profitable business which is earning 34% profit margins, the company is well-insulated with a strong competitive moat. The company’s successful earnings track record, driven by its leadership position in high-profile IPOs, has also been a key driver of its stock performance. What’s more, its ability make strategic acquisitions which has yielded consistent revenues all while reducing long-term debt, has been an appealing quality to investors.

Nasdaq’s winning streak is likely to continue this quarter, evidenced by the high trading revenues seen from the likes Goldman 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 September, the New York-based company is expected to deliver an 18% increase in earnings of $1.45 per share on revenue of $688.02 million. This compares to the year-ago quarter when earnings were $1.27 per share on $632 million in revenue. For the full year, ending in December, earnings are projected to rise 18.6% to $5.93 per share, while full-year revenue of the $2.78 billion would rise 9.7% year over year.

Though broadly known for its equity exchange business, Nasdaq’s business is well diversified with four strong businesses: Market Services, Corporate Services, Information Services, and Market Technology. 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 30% of the revenue as of the second quarter.

These collective businesses, which presents a significant moat, lead to Q2 earnings of $1.54 per share which increased 26% year over year from $1.22 in the year-ago quarter and beat consensus estimates by 10 cents per share. Q2 revenue of of $699 million rose 12% year over year, topping Street estimates of $682.14 million. Notably, Market Services revenue of $276 million rose 22%, thanks to record trading volumes in U.S. equities and options, while non-trading segments revenue increased 7%. On Wednesday investor will want to see continued growth in these metrics, along with growth in both volume and listings.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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