While the name Nasdaq (NASDAQ:NDAQ) is immediately recognizable by most in the investing world, the company famous for its Nasdaq Composite Index has a much broader array of operations. It manages four segments -- market technology, investment intelligence, corporate platforms, and market services -- and does much more than manage its index and help companies go public on the stock market.

Expanding into anti-financial crime technology as well as analytics and cloud-based market data, Nasdaq has built intriguing business lines adjacent to its core offerings. Even better for investors, these adjacent lines generate robust software-as-a-service (SaaS) sales, leading to highly sticky and predictable cash generation for the company.

Looking ahead, Nasdaq continues to shift its focus toward these new lines, aiming for SaaS to account for 40% to 50% of annualized recurring revenue (ARR) by 2025. With recent financial performance showing the benefits of this SaaS transformation, the best may be yet to come for Nasdaq's investors.

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Anti-financial crime unit leads SaaS charge

Leading the SaaS transformation for Nasdaq is its market technology segment, specifically its anti-financial crime unit and its $2.75 billion purchase of Verafin. Providing anti-money laundering and fraud solutions to banks and financial companies, Verafin boasts a 98% customer retention rate and has grown sales by over 30% since 2017.

On top of this growth, Nasdaq estimates that the serviceable addressable market (SAM) for these units is worth $9.5 billion -- over 20 times higher than its trailing-12-month sales in its market technology segment. After growing 130% year over year in Q3, SaaS sales now account for 57% of the segment's ARR, fueling Nasdaq's companywide SaaS transformation.

Thanks to the blistering growth and costs related to Verafin's integration, market technology's operating margin is still only 9% compared to Nasdaq's companywide mark of 27%. As this segment accounts for nearly one-fourth of the company's overall ARR, the maturation of its SaaS operations and subsequent margin improvement should lead to significant overall profitability improvement for Nasdaq.

With international consulting firm Oliver Wyman expecting anti-financial crime to grow by 17% annually through 2024, Nasdaq's positioning in this space should help it generate incredible long-term growth.

Companywide SaaS momentum

In addition to its anti-financial crime unit, Nasdaq is seeing steady SaaS growth companywide, as it has grown to become 34% of the company's total ARR. Led by its investment intelligence segment, including Nasdaq Data Link and Nasdaq Asset Owner Solutions, the company shows that its SaaS transformation is deeper than its recent Verafin acquisition.

Nasdaq Data Link, for example, was launched in September 2021 and is a cloud-based offering that provides a suite of market-related data sets to its customers. While new, CEO Adena Friedman is optimistic about the new launch, stating during the recent third-quarter earnings call: "Initial interest in Nasdaq Data Link is encouraging. The platform has seen daily average of 3,000 new visitors and 200 new account activations in the weeks following the launch."

In addition to these cloud-based investment intelligence offerings growing 15% year over year for the quarter, the $7 billion SAM for these marketplace analytics should catch investors' attention. With trailing-12-month revenue shy of $200 million in this area, this market is 36 times Nasdaq's current sales.

Last but not least, Nasdaq is seeing SaaS uptake from its investors' relations (IR) and environmental, social, and governance (ESG) unit, which rose 6% for Q3 year over year. Despite still being a small unit, the company's IR and ESG solutions are a great upsell to companies who previously went public through its listings business. 

As Nasdaq continues its march toward a companywide goal of SaaS accounting for 40% to 50% of ARR by 2025, investors will need to keep an eye on the company's bottom line. Having grown from 11% three years ago to nearly 20% now, its ongoing SaaS transformation has the potential to make Nasdaq a true profit machine and a great long-term holding.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.