Nasdaq, Inc. (NASDAQ:NDAQ) - A Diversified Financial Technology Powerhouse Delivering Consistent Growth

Published on September 24, 2024 | Ticker: NDAQ

Nasdaq, Inc. (NASDAQ:NDAQ) is a global technology company serving corporate clients, investment managers, banks, brokers, and exchange operators as they navigate and interact with the global capital markets and the broader financial system. The company's diverse offering of data, analytics, software, exchange capabilities, and client-centric services enables clients to optimize and execute their business vision with confidence.

Business Overview

Nasdaq operates in three business segments: Capital Access Platforms, Financial Technology, and Market Services. The Capital Access Platforms segment comprises Data & Listing Services, Index, and Workflow & Insights. The Financial Technology segment includes Financial Crime Management Technology, Regulatory Technology, and Capital Markets Technology solutions. The Market Services segment encompasses equity derivatives trading, cash equity trading, Nordic fixed income trading & clearing, and U.S. Tape plans data.

Financials

In the fiscal year 2023, Nasdaq reported annual net income of $1,059 million, annual revenue of $6,064 million, annual operating cash flow of $2,060 million, and annual free cash flow of $480 million. The company's strong financial performance is a testament to the resilience and diversification of its business model.

Quarterly Performance

During the second quarter of 2024, Nasdaq delivered impressive results, with net revenues of $1.2 billion, representing a 10% year-over-year increase. The company's solutions revenues grew by 13% during the same period. Nasdaq's overall annualized recurring revenue (ARR) grew 7% to $2.7 billion, showcasing the strength and stability of its subscription-based business model.

Segment Performance

The Capital Access Platforms segment reported revenue of $481 million, reflecting a 10% year-over-year growth. The Index business was a standout performer, with revenue up 29%, driven by $53 billion of organic inflows in the last 12 months and strong market performance, resulting in average ETP AUM of $531 billion. The Data and Listings revenue was up 1%, while ARR was down 1%, primarily due to the impact of prior year delistings, which was partially offset by higher data sales and usage, new listings, and pricing. The Workflow and Insights revenue increased by 4%, in line with the 4% ARR growth, driven by continued growth in innovative analytics products, mainly Datalink and eVestment, partially offset by headwinds in Corporate Solutions.

The Financial Technology segment delivered another strong quarter, with revenue of $420 million, a 16% increase year-over-year. ARR growth across the division was 13%, including 25% in Financial Crime Management Technology, 14% in the combined AxiomSL and Calypso solutions, and 9% in the combined Market Technology and Trade Management Services. The division had 69 new client signings, 96 upsells, and 4 cross-sells during the quarter. The company also saw continued cloud adoption, with 68% of AxiomSL and Calypso's combined bookings in the quarter being cloud-based, with a strong pipeline for future quarters.

The Market Services segment reported net revenue of $250 million, up 3% year-over-year. The growth was driven by higher volumes in cash equities in both North America and Europe, as well as in U.S. options, increased capture in North America equities, strong growth in U.S. index options, and share gains in European equities, partially offset by lower share in U.S. options and equities.

Strategic Priorities

Nasdaq's management remains focused on executing its strategic priorities of integrate, innovate, and accelerate. The company has actioned over 70% of the $80 million of net expense synergies from the Adenza acquisition, six months ahead of schedule. Nasdaq has also made significant progress in advancing its innovation agenda, with approximately 50% of its employee base working with AI tools to enhance productivity and drive its product roadmap. Additionally, the company has seen early traction in its cross-sell efforts, with 11 FinTech cross-sells since the Adenza acquisition, including 4 in the second quarter.

Outlook

Looking ahead, Nasdaq expects full-year revenue growth for the Capital Access Platforms segment to exceed its medium-term growth outlook range, with the Index business expected to come in above its range. The Financial Technology segment is expected to maintain its strong momentum, with the company anticipating more normalized growth across the products within the division in the second half of 2024 compared to the first half. The Market Services segment is expected to continue its solid performance, though the company anticipates a one percentage point decline in operating margin due to continued investments in market monetization and regulatory obligations.

Conclusion

Nasdaq's diversified business model, strong execution, and focus on innovation position the company well to navigate the dynamic market environment and deliver consistent growth. The company's robust financial performance, with annual net income of $1,059 million, annual revenue of $6,064 million, annual operating cash flow of $2,060 million, and annual free cash flow of $480 million, underscores its ability to generate sustainable value for its shareholders.

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