Nasdaq Earnings: Market Conditions Pressure Revenue Growth, but Antifinancial Crime Builds Momentum

Narrow-moat Nasdaq NDAQ reported first-quarter earnings that were in line with our expectations, with weakness in its index and listing businesses offset by strong performance from its market technology and antifinancial crime segments. Net revenue increased 2% from last year and 0.9% sequentially to $914 million. Meanwhile, EPS rose 7% year over year to $0.61 per share. As we incorporate these results, we are maintaining our $58 fair value estimate.

Nasdaq continues to face headwinds in its index and listing businesses, both of which are exposed to shifts in market conditions. Index revenue fell 10% from last year to $110 million due to a decrease in Nasdaq’s assets under management-based licensing fees, with the average AUM of products tracking Nasdaq’s indexes falling 11% from the prior year’s quarter to $341 billion.

Meanwhile, the company’s data and listing services segment grew 2% to $186 million. The number of listed companies on the Nasdaq exchange fell 2% from last year to 4,163. However, this decline was not the result of competitive weakness as the firm saw an impressive 91% win rate for new U.S. IPOs. While Nasdaq has built a competitive advantage in the listing business by taking advantage of synergies between its listing, index, and corporate service offerings, until IPO volumes improve this advantage will provide limited benefits to the company.

On a more positive note, Nasdaq’s antifinancial crime and market technology businesses maintained their momentum, with revenue rising 17% and 10.6%, respectively, to $84 million and $146 million during the quarter. Additionally, Nasdaq announced its antifinancial crime business won its first Tier 1 bank client, having paid a substantial premium for its $2.75 billion acquisition of Verafin with the intent being to expand its customer base into Tier 1/Tier 2 clients. While this remains a work in progress, tangible progress is a positive sign for Nasdaq’s strategy.