Nasdaq (NDAQ) Q3 Earnings: What to Expect

Nasdaq MarketSite Tower
Credit: Nasdaq

Shares of Nasdaq (NDAQ) have gone on an explosive run over the past six months, rising almost 30% compared to a 7% rise in the S&P 500 index. And when expending that horizon to twelve months, its 60% rise have more than doubled the S&P 500’s 28% gain.

Given that Nasdaq is home to some of the biggest names in tech, its leadership position in trading technology has enabled the company to consistently navigate market volatility in a manner that other major exchanges have otherwise struggled. As such, investors have figured out that NDAQ stock is a safe way to capitalize on the tech stock market boom without taking nearly as much risk. But can that outperformance continue?

The company is set to report third 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 in the wake of the pandemic. Also, Nasdaq’s high index composition of technology companies, many of which enabled remote-learning and remote-work, thrived during the pandemic.

With 40% of its revenues coming from trading and market-making services, the company’s trading business serve as the foundation for Nasdaq's other products and services. This has helped the company to not only produce 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. The market will want to know whether these factors are still in play for Q3 and how much growth is still on the horizon.

In the three months that ended September, the New York-based company is expected to deliver an 10% increase in earnings of $1.71 per share on revenue of $833.26 million. This compares to the year-ago quarter when earnings were $1.53 per share on $715 million in revenue. For the full year, ending in December, earnings are projected to rise 18% to $7.29 per share, up from $6.18 a year ago, while full-year revenue of the $3.38 billion would rise 16.5% year over year.

Nasdaq has delivered an average earnings beat of almost 10% in each of the last four quarters. And there’s a high probability that another strong beat will come in Q3 thanks to the company’s technology investments and ability to make strategic acquisitions, such as recent deals for Verafin, Solovis and eVestment. Though broadly known for its equity exchange business, Nasdaq’s revenue based is also 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. On Wednesday, investors will want to see continued growth in these metrics, along with growth in both volume and listings.

Marketing Technology revenues is forecasted to be $125 million, suggesting growth of 45.3%, while estimates for Investment Intelligence segment revenues is pegged at $264 million, calling for an 11% rise. Elsewhere, revenue in the Analytics businesses and Index revenue calls for respective revenue growth of 13% and 24%. Nasdaq’s earnings winning streak is likely to continue again this quarter, driven by higher clearing house fees for stocks and derivatives transactions services. As such, it would be a mistake to part from this proven winner.

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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