The below is an extract of the latest write-up released in our newsletter. In this write-up, we cover $NDAQ.

For the full write-up you can click here --> Nasdaq Inc: A Diversified Financial Powerhouse

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Nasdaq Inc operates the Nasdaq stock exchange in US, known for being the most active stock exchange in terms of share volume traded and the second largest in market capitalization of shares traded, closely trailing the New York Stock Exchange (NYSE).

According to Statista, as of June 2023, the combined market capitalization of listed companies on NYSE and NASDAQ reached an impressive $46 trillion, with approximately $25 trillion listed on NYSE and $21 trillion on Nasdaq. While NYSE held the upper hand in market capitalization, Nasdaq has steadily gained popularity over the years narrowing the gap with its larger competitor ($23 trillion in NYSE and $11 trillion in NASDAQ back in January 2018). This success can be attributed to Nasdaq's appeal to tech companies, which were drawn to the exchange early on, as well as its softer listing requirements that attracted young companies seeking to raise capital in the public markets.

Nasdaq Inc. expanded beyond its US roots and transformed into a global exchange operator in 2008 when it acquired OMX AB, subsequently known as Nasdaq Nordic for $3.7 billion. Nasdaq Nordics, comprises of exchanges in Stockholm (Sweden), Copenhagen (Denmark), Helsinki (Finland), and Reykjavik (Iceland), as well as Nasdaq Baltics with exchanges in Tallinn (Estonia), Riga (Latvia) and Vilnius (Lithuania). This international presence has further strengthened Nasdaq's position in the global financial landscape

Far from it. Over the years, Nasdaq has strategically transformed itself into a global technology company with diversified revenue streams, offering services to the capital markets and the financial services sector. Beyond its role as a stock exchange operator, Nasdaq offers an array of services, including listing services, index, marketplace technology and trading services as well as data, analytics and software solutions for corporates and investors.

In 2017, Nasdaq made a pivotal move, redirecting resources towards its most promising growth opportunities, which encompassed various areas, such as anti-financial crime, marketplace technology solutions, workflow solutions for investment management, and corporate solutions, including Environmental, Social, and Governance (ESG) initiatives and investor relations.

Several strategic acquisitions confirm Nasdaq's commitment to diversifying its revenue streams:

Nasdaq’s Solutions Business revenues, which excludes transaction-based revenues (included in trading services of the Market Platforms segment and other revenues) have shown significant growth, rising to 73% of the total revenue in the most recent quarter, compared to 63% in FY18.

Over time, the Solutions Business has exhibited robust organic growth, with an average growth rate of 9% between 2018 and 2022 compared to a growth rate of 4% in FY17. Encouragingly, management foresees continued growth in Solutions Business, projecting an annual growth rate of 7-10% over the next 3-5 years.

To gauge its Solutions Business performance, Nasdaq closely monitors its Annual Recurring Revenue (ARR) and Software as a Service (SaaS) revenue. Over the period Q4’17 to Q4’22, ARR increased from $1,216 million to $2,007 million, and as of Q2’23, it reached $2,073 million, representing a 6% year-on-year increase.

Nasdaq's strategic acquisitions, including Verafin, Solovis, and eVestment, have significantly contributed to the rise in software revenues. Management's target is to achieve 50% SaaS annualized revenue as a percentage of its ARR by 2027, a substantial increase from the current 36% (compared to 21% in Q4’16). In Q4’16, Nasdaq's annualized SaaS revenue amounted to $244 million, while as of Q2’23, it has soared to $755 million, reflecting a CAGR of 19% over the period.

Assuming ARR grows by 8.5% (mid of 7%-10% expected growth in Solutions business), SaaS revenue should reach ~$1.44B by Q2’27 to account for 50%. This implies a CAGR of 17.5% which is in line with historic rates.

Amidst this expansion and diversification of revenue streams through acquisitions and organic growth, Nasdaq has managed to successfully increase its EBITDA margin from 52% in FY18 to 55% in FY22. This indicates that the growth achieved through strategic acquisitions has been accretive to profitability, demonstrating Nasdaq's ability to grow profitably.

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📢 The rest of the write-up covers Business segments, Acquisition of Adenza, Management, Industry, Financials, Competitive Advantages, Opportunities, Risks and Valuation.

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