Driven by its leadership position in trading technology and stock exchange, Nasdaq (NDAQ) demonstrated a consistent ability to power through market volatility in a manner that other major exchanges have otherwise struggled with.
With revenues rising impressively over the past decade, including 10% increase in 2021 despite the adverse effects of the pandemic, Nasdaq’s investments in trading technology adapted quickly to the rapid shift towards digitization and an overall virtual world response. The stock, however, hasn’t been immune to the market’s recent correction. Already down 15% year-to-date, the shares have fallen 11% over the past six months, compared to 1% decline in the S&P 500 index. But can that decline continue?
The company, which is home to some of the biggest names in tech, is set to report first quarter fiscal 2022 earnings results before the opening bell Wednesday. Nasdaq's high index composition of technology companies has been a key driver of its sustained growth. The big tech companies, many of which enabled not only remote-learning and remote-work, but also online shopping and deliveries, thrived during the pandemic. However, the market has since been rattled not only by global growth fears, but also rising inflation and rising interest rates.
These factors have driven the recent rise in volatility in the market. Complicating matters, there is also tightening monetary policy by the Federal Reserve which are causing investors to feel less confident on whether growth expectations for large S&P 500 companies are realistic. In the case of Nasdaq, it is now in the crosshair of all of this doubt, given that it is home to some of the biggest names in tech. That said, the company’s leadership position in trading technology and exchange capabilities has enabled the company to consistently navigate market volatility.
What’s more, some 40% of its revenues comes from trading and market-making services, driving not only organic revenue growth, but also high-quality revenues that contributes meaningfully to the company’s bottom line, yielding 34% profit margins. These qualities have helped Nasdaq to become well-insulated with a strong competitive moat. Nevertheless, the market on Wednesday will want to know whether these factors are still in play for the just-ended quarter and for the rest of the year.
In the three months that ended March, the New York-based company is expected to deliver earnings of $1.94 per share on revenue of $891.2 million. This compares to the year-ago quarter when earnings were $1.96 per share on $851 million in revenue. For the full year, ending December, earnings are projected to rise 4.5% to $7.90 per share, up from $7.56 a year ago, while full-year revenue of the $3.59 billion would rise 5.1% year-over-year.
While the company is broadly known for its equity exchange business, Nasdaq’s revenue base is well diversified with four strong businesses. The Market Services (trading arm) segment, Corporate Services, which offers listing services and investor relations products, the Information Services segment, which provides and distributes exchange data, and Market Technology. Evidenced by the high trading revenues seen from Goldman Sachs (GS) and Morgan Stanley (MS), Nasdaq’s earnings winning streak is likely to continue again this quarter.
The company’s trading business serves as the foundation for other products and services which has contributed to an average earnings beat of almost 10% in each of the last four quarters. In Q4, the company beat on both the top and bottom lines, with Q4 adjusted EPS of $1.93 beating the consensus estimate by 15 cents, while revenue of $885 million rose 12.3% year-over-year, topping Street estimates by $17.7 million. 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.
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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