Nasdaq Earnings: Revenue Growth Remains Slow but Stronger Market Conditions Improve Future Prospects

Narrow moat-rated Nasdaq NDAQ reported second-quarter results that were in line with our expectations, as trading revenue and listing income acted as headwinds to growth while the company’s anti-financial crime segment saw continued momentum. Net revenue increased 3.6% from last year and 1.2% from last quarter to $925 million. Meanwhile, earnings per share fell to $0.54 from $0.62 last year, with the decline primarily driven by $57 million in merger and restructuring charges. As we incorporate these results, we do not plan to materially alter our $55 fair value estimate. We see the shares as roughly fairly valued at the current price.

While Nasdaq’s index segment did not show impressive year-over-year growth, there are signs that the business is on better footing now that market valuations have increased. Nasdaq receives around two-third of its index revenue from fees charged based on the amount of assets linked to its indexes, creating a direct link between market prices and its business results. While index revenue only increased 4% year over year, it increased 17% sequentially to $129 million. Moreover, valuations rose throughout the quarter, with the number of assets linked to Nasdaq’s indexes ending the quarter at $418 billion versus the period average of $381 billion, likely giving the segment a strong start to the third quarter.

Nasdaq’s anti-financial crime segment also produced another quarter of strong performance, as the company’s underlying strategy for the segment appears to be working. Revenue increased 18.7% from last year and 5.9% sequentially, as the businesses enjoy accelerating growth. Additionally, Nasdaq signed four Tier 1 and Tier 2 bank clients during the quarter. When Nasdaq acquired Verafin for $2.75 billion, the firm’s stated plan for the business was to expand its client base from small to medium U.S. banks to larger enterprises. The sales cycle for these larger clients is long, but Nasdaq has seen begun to see meaningful success in 2023.