Is Nasdaq Stock Attractive At The Current Levels?

Nasdaq stock (NASDAQ: NDAQ) has lost approximately 14% YTD as compared to the 16% drop in the S&P500 index over the same period. Further, at its current price of $60 per share, it is trading 11% below its fair value of $67 – Trefis’ estimate for Nasdaq’s valuation. Notably, the company completed a three-for-one stock split of the common shares on August 29, 2022.

The exchange topped the street expectations in the second quarter of 2022, with the net revenues (total revenues minus transaction-based expenses) increasing 6% y-o-y to $893 million. It was driven by a 10% rise in the solutions segment (non-trading revenues), followed by a 1% increase in the market services unit (trading revenues). Markedly, the solutions segment includes market technology, investment intelligence, and corporate platforms sub-segments, and each one of them reported growth in the quarter. The improvement in the top-line, coupled with lower expenses as a % of revenues translated into an operating income of $412 million – up 10% y-o-y. That said, the adjusted net income was still down 10% y-o-y to $307 million, primarily due to the net gain of $84 million on divestiture of business received in the year-ago period.

The total revenues rose by 5% y-o-y to $5.9 billion in 2021, which translated into net revenues of $3.4 billion – up 18% y-o-y. It was driven by growth in both trading and non-trading revenues. However, the trading revenues suffered in the first and second quarters of 2022. Overall, the company posted net revenues of $1.8 billion in the first half of 2022, an increase of 5% on a year-on-year basis. The growth was primarily driven by the solutions segment.

Moving forward, we expect the non-trading revenues to continue to drive growth in the subsequent quarters. We estimate Nasdaq’s revenues to touch $6.2 billion in FY2022. Additionally, NDAQ’s adjusted net income margin is likely to see a slight drop in the year, leading to an adjusted net income of $1.12 billion and an annual GAAP EPS of $2.28. This coupled with a P/E multiple of just above 29x will lead to the valuation of $67.

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[1] Month-to-date and year-to-date as of 8/30/2022
[2] Cumulative total returns since the end of 2016

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