Driven by its leadership position in trading technology and as a stock exchange, Nasdaq (NDAQ) has demonstrated a consistent ability to power through market volatility in a manner that other major exchanges have otherwise struggled, allowing the company produce not only organic revenue growth but also higher licensing revenues. But can that trend continue?
Home to some of the biggest names in tech, the company is set to report second quarter fiscal 2021 earnings results before the opening bell Wednesday. Thanks to its investments in trading technology, Nasdaq adapted quickly to the rapid shift towards digitization and an overall virtual world response. This has helped the company to deliver an average earnings beat of around 8.30% over the past four quarters.
The company’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 global pandemic lockdown. And when factoring home entertainment and remote socialization, technology enabled business activities which otherwise would not have been possible. The market will want to know whether these factors are still in play for Q2 and how much of it trickles to Nasdaq’s bottom line.
The company’s recent acquisitions of Verafin, Solovis and eVestment are also expected to provided additional growth opportunities in the quarters ahead. Nasdaq stock, meanwhile, has been rewarded handsomely, producing gains of more than 27% over the past six months, besting the 14.8% rise in the S&P 500 index. But with the stock up 34% year to date, compared to 15% rise int he S&P 500, it appears the market already knows Nasdaq’s operating quality. The company will need more than a top- and bottom-line beat to push the share price higher.
In the three months that ended June, the New York-based company is expected to deliver an 10% increase in earnings of $1.70 per share on revenue of $810.54 million. This compares to the year-ago quarter when earnings were $1.54 per share on $699 million in revenue. For the full year, ending in December, earnings are projected to rise 12% to $6.93 per share, up from $6.18 a year ago, while full-year revenue of the $3.3 billion would rise 13.6% year over year.
Operating a highly profitable business with 34% profit margins, Nasdaq has become well-insulated with a strong competitive moat. The company’s technology investments and ability make strategic acquisitions, also enabled increases not only in trading activity, but also facilitated high-profile IPOs which it has become known for. Though broadly known for its equity exchange business, Nasdaq’s business is well diversified with four strong businesses.
The Market Services (trading arm) segment accounts for some 40% of its revenue. Corporate Services business, which offers listing services and investor relations products, makes up about 20% of total revenue. The Information Services segment, which provides and distributes exchange data, makes up about 30%, with Market Technology accounting for the remaining revenue portion. These collective businesses lead to Q1 earnings of $1.96 per share with revenue of $851 million, which increased 21.4%, beating consensus estimates.
On Wednesday, investors will want to see continued growth in these metrics, along with growth in both volume and listings. Nasdaq’s earnings winning streak is likely to continue again this quarter, driven by higher clearing house fees for stocks and derivatives transactions services.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.