10-Q: Nasdaq Reports Q3 2024 Results, Driven by Strong Performance in Financial Technology and Market Services

Nasdaq's Q3 2024 results show significant revenue growth, particularly in Financial Technology and Market Services, alongside a strategic shift in business segments.

Summary

• Nasdaq's Q3 2024 revenues less transaction-based expenses increased by 21.9% year-over-year to $1.146 billion.
• The company's operating income rose by 3.7% to $448 million, while net income attributable to Nasdaq increased by 3.9% to $306 million.
• Diluted earnings per share decreased by 11.3% to $0.53, and cash dividends declared per common share increased by 9.1% to $0.24.
• For the nine months ended September 30, 2024, revenues less transaction-based expenses grew by 23.2% to $3.422 billion.
• Operating income for the nine-month period increased by 4.5% to $1.281 billion, but net income attributable to Nasdaq decreased by 11.6% to $762 million.
• Diluted earnings per share for the nine-month period decreased by 24.6% to $1.32, while cash dividends declared per common share increased by 9.4% to $0.70.
• The company's ARR reached $2.935 billion, reflecting growth in recurring revenue streams.
• Nasdaq's Index business achieved a record $600 billion in ETP AUM at quarter-end, with an average of $575 billion during the quarter.
• The company returned $138 million to shareholders through dividend payments and $88 million in share repurchases during the quarter.

Sentiment

Score: 6

Explanation: The document presents a mixed picture with strong revenue growth offset by decreased earnings per share and increased operating expenses. The strategic shift and growth in key areas are positive, but the financial results are not uniformly strong.

Positives

• Strong revenue growth in Financial Technology and Market Services segments.
• Record ETP AUM in the Index business.
• Record U.S. equity derivatives net revenue.
• Increased cash dividends declared per common share.
• Strong listings leadership in the U.S. with a high win rate.
• Growth in U.S. index options volume.

Negatives

• Diluted earnings per share decreased in both Q3 and the nine-month period.
• Net income attributable to Nasdaq decreased for the nine-month period.
• Operating expenses increased significantly, impacting overall profitability.

Risks

• The company's operating results may be lower than expected.
• There are risks associated with integrating acquired businesses.
• The company faces the risk of losing significant trading and clearing volumes or values.
• The company's ability to keep up with rapid technological advances is a risk.
• Economic, political and market conditions and fluctuations could impact results.
• The performance and reliability of the company's technology is a risk.
• Adverse changes in litigation or regulatory areas could impact results.

Future Outlook

The company expects to achieve $80 million of net expense synergies from the Adenza restructuring program and $30 million annually by 2025 from the 2022 divisional alignment program.

Management Comments

• Nasdaqs Index business achieved another record in Index ETP AUM, averaging $575 billion during the third quarter of 2024 and reaching $600 billion at quarter-end.
• Nasdaq strengthened its listings leadership in the U.S. in the third quarter of 2024 with a 85% win rate of eligible operating companies.
• In the third quarter of 2024, Nasdaq achieved a record quarter of U.S. equity derivatives net revenue of $107 million, with multi-listed U.S. options market share once again surpassing 30% in the quarter and 19% growth in U.S. index options volume.
• In the third quarter of 2024, we returned $138 million to shareholders through dividend payments and $88 million in repurchases of our common stock.
• In October 2024, the board of directors approved a regular quarterly cash dividend of $0.24 per share on our outstanding common stock.

Industry Context

The results reflect Nasdaq's strategic shift towards technology and data-driven solutions, aligning with broader trends in the financial industry. The company's focus on recurring revenue streams and its strong performance in financial technology and market services position it well in a competitive landscape.

Comparison to Industry Standards

• Nasdaq's performance in the U.S. equity derivatives market, with a record net revenue of $107 million, indicates a strong position compared to other exchanges.
• The company's 85% win rate for U.S. operating company listings suggests a competitive advantage over other listing venues.
• The growth in ETP AUM to $600 billion demonstrates Nasdaq's success in the index business, which is a key area of competition among exchanges.
• The company's focus on recurring revenue streams, as evidenced by its ARR of $2.935 billion, is a common strategy among technology-focused financial companies.
• The increase in operating expenses, while impacting profitability, is also a common trend among companies investing in growth and technology.

Legal Proceedings

• In August 2024, the CFTC issued an order alleging certain violations of the Commodity Exchange Act and CFTC regulations by NASDAQ Futures, Inc. (NFX), a non-operational, wholly-owned subsidiary of Nasdaq, during the period from July 2015 through July 2018.
• In September 2024, the European Commission conducted an inspection at the Nasdaq Stockholm offices related to a potential competition law concern regarding the trading of Nordics financial derivatives.

Stakeholder Impact

• Shareholders will benefit from increased dividends and share repurchases.
• Employees may see changes due to restructuring and integration efforts.
• Customers will benefit from improved technology and services.
• Suppliers may be impacted by changes in procurement policies.
• Creditors will be impacted by the company's debt management strategies.

Next Steps

• The company will continue to focus on integrating the Adenza acquisition.
• The company will continue to evaluate options for its Nordic power trading and clearing business.
• The company will continue to pursue strategic initiatives and acquisitions.
• The company will continue to focus on realizing the full potential of its new corporate structure.

Key Dates

Keywords

Financial Technology, Market Services, Index business, ETP AUM, Equity Derivatives, Listings, Recurring Revenue, SaaS, Share Repurchase, Dividends