Nasdaq (NDAQ) Up 5% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Nasdaq (NDAQ). Shares have added about 5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Nasdaq due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Nasdaq Beats on Q3 Earnings, Tightens Expense View

Nasdaq reported third-quarter 2021 adjusted earnings per share of $1.78, beating the Zacks Consensus Estimate of $1.72 by 3.5%. The bottom line increased 16% year over year.

The improvement reflects consistent long-term growth in the Anti Financial Crime, Index and Analytics offerings, the benefits of the materially-expanded listed issuer base in Corporate Platforms segment, and robust performance of the marketplace and connectivity platforms comprising Market Services business.

Performance in Detail

Nasdaq’s revenues of $838 million increased 17% year over year. The upside was primarily attributable to a $96 million impact from organic growth, a $25 million increase from the inclusion of revenues from the acquisition and divestitures, and a $2 million increase from the impact of favorable changes in FX rates. The top line beat the Zacks Consensus Estimate by 1.5%.

Adjusted operating expenses were $397 million, up 15% from the year-ago period owing to a $26 million organic increase, a $21 million impact of acquisitions and divestitures and a $4 million increase from changes in FX rates.

Operating margin of 53% expanded 100 basis points year over year.

Nasdaq witnessed 147 IPOs in the third quarter, representing $29 billion in capital raised, including 80 operating company IPOs and 67 IPOs of special purpose acquisition companies. In the reported quarter, the Nasdaq welcomed 223 new listings.

Segment Details

Net revenues at Market Services were up 15% from the year-ago quarter to $295 million. This upside was largely due to higher revenues from equity derivative trading and clearing, cash equity trading, fixed income and commodities trading and clearing, and trade management services.

Revenues at Corporate Platform increased 18.3% year over year to $155 million, driven by higher listings services revenues as well as IR & ESG revenues.

Investment Intelligence revenues rose 15.3% year over year to $272 million. Higher index and analytics revenues drove the upside.

Revenues at Market Technology increased 32.6% year over year to $114 million, largely due to higher revenues at anti-financial crime technology.

Financial Update

Nasdaq had cash and cash equivalents of $303 million as of Sep 30, 2021, down from $2.7 billion at 2020-end level. Long-term debt decreased 1.7% from 2020-end level to $5.4 billion as of Sep 30, 2021.

Capital Deployment

Nasdaq returned $1.145 billion in the first nine months of 2021, including $885 million in share repurchases and $260 million in dividends.

As of Sep 30, 2021, Nasdaq had $984 million remaining under its share repurchase authorization.

Guidance

Nasdaq tightened its 2021 non-GAAP operating expense guidance to a range of $1.61 billion  to $1.62 billion from $1.59 billion to $1.62 billion guided earlier.

Non-GAAP tax rate is still estimated to be in the range of 25% to 27% in 2021.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Nasdaq has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Nasdaq has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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