Despite posting 30% returns over the past year, shares of Nasdaq (NDAQ) seemingly flew under the radar in 2020, particularly since the pandemic-induced selloff began in last March. During that span, NDAQ stock surged as much as 100%, rising from a low of $72 to a recent high of $144.
That return significantly out-performed not only the broader financial sector, but also the S&P Financial Select SPDR ETF (XLF). Already, Nasdaq stock is up roughly 6% year to date, besting the 2.2% rise in the S&P 500 index. The exchange operator — which is home to some of the biggest names in tech — has shown it can power through market volatility in a manner that other major exchanges have not. But can its strong outperformance continue?
The company is set to report fourth quarter fiscal 2020 earnings results before the opening bell Wednesday. The reason for the company’s strong outperformance has been due to a combination of factors. Aside from the fact it operates a highly profitable business which is earning 34% profit margins, Nasdaq is well-insulated with a strong competitive moat. Nasdaq’s successful earnings track record, driven by its leadership position in high-profile IPOs, has also been a key driver of its stock performance.
What’s more, its ability make strategic acquisitions which has yielded consistent revenues all while reducing long-term debt has an appealing quality to investors. Evidenced by the high trading revenues seen from the likes Goldman Sachs (GS) and Morgan Stanley (MS), Nasdaq’s earnings winning streak is likely to continue this quarter, given that the company acts as a clearinghouse for stocks and derivatives transactions — a business that accounts for some 40% of its revenue. On Wednesday investors will want to see a sustained rise in trading volumes as well as confident guidance.
In the three months that ended December, the New York-based company is expected to deliver an 12.4% increase in earnings of $1.45 per share on revenue of $748.98 million. This compares to the year-ago quarter when earnings were $1.29 per share on $646 million in revenue. For the full year, ending in December, earnings are projected to rise 21% to $6.05 per share, up from $5 per share a year ago, while full-year revenue of the $2.86 billion would rise 12.8% year over year.
Though broadly known for its equity exchange business, Nasdaq’s business is well diversified with four strong businesses: Market Services, Corporate Services, Information Services, and Market Technology. While the Market Services segment accounts for roughly 40% of revenue, its Corporate Services business, which offers listing services and investor relations products, makes up about 20% of total revenue, while the Information Services segment, which provides and distributes exchange data, makes up about 30% of the revenue as of the third quarter.
These collective businesses, which presents a significant moat, led to Q3 earnings of $1.53 per share which increased 20%, beating consensus estimates by 10 cents. Third quarter revenue rose more than 13% to $715 million, topping estimates by $24 million. Notably, Market Services revenue rose 14% to $259 million, thanks to record trading volumes in U.S. equities and options. Non-trading segments revenue enjoyed a $41 million in organic growth. 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.
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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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