DTorn by its leadership position in trading technology and the stock market, the Nasdaq (NDAQ) has demonstrated a consistent ability to weather market volatility in a way that other major exchanges have otherwise struggled with.
With revenues rising impressively over the past decade, including a 10% increase in 2021 despite the adverse effects of the pandemic, Nasdaq’s investments in trading technology have quickly adapted to the rapid shift to digitalization and a global response from the virtual world. The stock, however, has not been immune to the recent market correction. Already down 15% year-to-date, stocks have fallen 11% in the past six months, against a 1% drop in the S&P 500 index. But can this decline continue?
The company, home to some of the biggest names in tech, is expected to report its first-quarter fiscal 2022 results before the opening bell on Wednesday. The high composition of the Nasdaq index of technology companies has been a key driver of its sustained growth. Big tech companies, many of which have enabled not only remote learning and working but also online shopping and delivery, have thrived during the pandemic. However, the market has since been rattled not only by global growth fears, but also by rising inflation and rising interest rates.
These factors have led to the recent increase in volatility in the market. To complicate matters, the Federal Reserve’s monetary policy tightening is making investors less confident about the realism of the growth expectations of the big companies in the S&P 500. In the case of the Nasdaq, it is now in the crosshairs of all those doubts. , 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 allowed the company to consistently navigate market volatility.
Additionally, approximately 40% of its revenue comes from trading and market-making services, resulting in not only organic revenue growth, but also high-quality revenue that contributes significantly to business results, generating profit margins of 34%. These qualities have helped the Nasdaq become well insulated with a strong competitive moat. Nonetheless, the market will want to know on Wednesday if these factors are still in play for the quarter just ended and for the rest of the year.
In the three months ending March, the New York-based company is expected to generate earnings of $1.94 per share on revenue of $891.2 million. That compares to the year-ago quarter where earnings were $1.96 per share on $851 million in revenue. For the full year, ending in December, earnings are expected to rise 4.5% to $7.90 per share from $7.56 a year ago, while annual revenue of $3.59 billion dollars would increase by 5.1% year over year.
Although the company is widely known for its stock trading business, Nasdaq’s revenue base is well-diversified with four strong businesses. The Market Services segment (dealing arm), Corporate Services, which offers listing services and investor relations products, the Information Services segment, which provides and distributes stock market data, and Market Technology. Evidenced by strong trading earnings from Goldman Sachs (GS) and Morgan Stanley (MS), the Nasdaq’s winning streak is set to continue this quarter.
The company’s business activity serves as the foundation for other products and services, which has contributed to an average profit increase of nearly 10% in each of the past four quarters. In the fourth quarter, the company beat both the high and the low, with fourth-quarter adjusted EPS of $1.93 beating the consensus estimate by 15 cents, while revenue of $885 million rose by 12.3% year-over-year, beating Street’s estimate of $17.7 million. On Wednesday, investors will want to see continued growth in these metrics, as well as 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.