Shares of Nasdaq (NDAQ) dipped along with the rest of the market, falling almost 13% over the past thirty days. And when expending that horizon to six months, the stock has lost 5%, against the S&P 500’s 1% gain. That’s not a surprise, given the Nasdaq Composite Index itself has corrected by around 13% from its recent all-time high. But is now a good time to buy?
The exchange operator is set to report fourth quarter fiscal 2021 earnings results before the opening bell Wednesday. The market has been rattled by, among other things, global growth fears, high valuations, rising interest rates and tightening monetary policy by the Fed. These factors have driven the recent rise in volatility in the market. Complicating matters, investors are also feeling less confident whether growth expectations are realistic for companies that are in the so-called value bucket, putting further pressure on a near-term bounce.
In the case of Nasdaq, it is now in the crosshairs 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 in a manner that other major exchanges have otherwise struggled. Not only does it have a significant amount of market share, it has been the IPO leader for almost a decade, driving a massive amounts of business volume and revenues for the company.
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 revenue 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. As such, it’s hard to ignore how well-insulated NDAQ stock could be to near-term pressures. The market will nevertheless want to know whether these factors are still in play for the just-ended quarter and for the year.
In the three months that ended December, the New York-based company is expected to deliver an 10% increase in earnings of $1.77 per share on revenue of $866.09 million. This compares to the year-ago quarter when earnings were $1.60 per share on $788 million in revenue. For the full year, earnings are projected to rise 19% to $7.38 per share, up from $6.18 a year ago, while full-year revenue of the $3.4 billion would rise 17% 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. Thanks to its investments in trading technology, Nasdaq adapted quickly to the rapid shift towards digitization and an overall virtual world response.
The company’s trading business serve 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 the third quarter, the company beat on both the top and bottom lines, with Q3 adjusted EPS of $1.78 beating the consensus estimate of $1.73, while revenue of $838 million rose 16% year over year, topping the $833.1 million the Street was looking for. On Wednesday investors 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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