Market technology and financial services provider Nasdaq (NDAQ -0.65%)reported mixed third-quarter results on Thursday, Oct. 24. The company reported adjusted earnings per share (EPS) of $0.74, exceeding the Wall Street consensus of $0.69. However, total net revenue of $1.1 billion fell slightly short of the $1.17 billion anticipated. The standout performance in its Financial Technology and Index sectors spurred a year-over-year revenue growth of 22%.
Nasdaq's quarter was marred by a 37% rise in GAAP operating expenses, primarily due to the integration costs associated with its November 2023 acquisition of Adenza. While the company demonstrated earnings growth, it must circumnavigate the rising expense tide to optimize future growth.
| Metric | Q3 2024 | Analysts Expectation | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | $0.74 | $0.69 | $0.70 | 5% |
| Total net revenue | $1.1 billion | $1.17 billion | $940 million | 22% |
| Solutions revenue (non-GAAP) | $906 million | N/A | $694 million | 31% |
| GAAP operating expenses | $698 million | N/A | $509 million | 37% |
| Annualized recurring revenue | $2.7 billion | N/A | $2.08 billion | 31% |
Source: Nasdaq. Note: Analyst estimates for the quarter provided by FactSet. YOY = Year over year. GAAP = Generally accepted accounting principles.
Overview of Nasdaq's Business
Nasdaq is a prominent global financial technology and market services provider. It operates through diverse segments such as Financial Technology, Capital Access Platforms, and Market Services. Nasdaq provides trading, clearing, risk management, and market surveillance solutions and is renowned for its technology-driven approach.
Nasdaq focuses its strategic efforts on technological advancement and integration, particularly cloud-based solutions and artificial intelligence (AI), to modernize its operations. It aims to leverage these technologies to enhance market efficiency, scalability, and transparency.
Quarterly Highlights
Nasdaq's strategic acquisitions and continual technological innovations were at the forefront of its reported growth in Q3. The non-GAAP operating income surged by 30% to $637 million, leveraging strong demand in the Financial Technology sector, which saw a notable revenue increase to $371 million, up 56% year over year. Moreover, the Index division added $182 million, reflecting an impressive $62 billion net inflow over 12 months.
Nasdaq's advancements in AI and cloud integration, such as through collaborations with Amazon's (AMZN -0.67%) AWS, played a crucial role in strengthening its operational capacity. The launch of AI-powered tools for financial crime management highlights the company's commitment to tech-driven enhancements. Amid market volatility, Nasdaq achieved record U.S. equity derivatives net revenue of $107 million, reaffirming its stronghold on diversified market services.
Elevated expenses due to integration costs, particularly from the Adenza acquisition, need monitoring. The GAAP operating expenses were up substantially, and the company is targeting cost management improvements and streamlined integration to alleviate future expenditures.
Nasdaq declared dividends totaling $138 million and repurchased $58 million of common stock, maintaining its focus on shareholder returns. However, regulatory challenges and integration costs may continue to pressure future fiscal periods.
Looking Ahead
Going forward, Nasdaq projects a positive trajectory anchored in technological integration and market expansion. It anticipates robust revenue growth driven by enhanced operational leverage and synergies from acquisitions like Adenza. These efforts could bolster recurring revenue streams and expand its reach across markets.
Management remains optimistic yet cautious about forward guidance, maintaining (while narrowing) its non-GAAP expense forecast of $2.15 billion to $2.18 billion for the year. Investors should stay mindful of Nasdaq's ability to navigate acquisition costs and regulatory landscapes, ensuring sustainable growth amid evolving market conditions.
