Nasdaq, Inc: Buckle Up for a Wild Ride in Finance!
Remember we talked about the OTC market group a few weeks back? Well Nasdaq is the exchange where successful companies on the OTC market go when they grow up.
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Nasdaq, Inc. (NDAQ) – ever heard of it? Of course, you have! It's not just some stock exchange, it's the Nasdaq Stock Market, the second-largest in the world by market capitalization. But hold on tight, because Nasdaq is like a roller coaster of financial innovation, with twists and turns that'll make your head spin. They've gone from trading stocks to becoming a global tech titan, offering cutting-edge solutions for the capital markets. Think of them as the cool kids on the financial block, always pushing the boundaries and making things happen.
More Than Just a Stock Market: Nasdaq's Mission is a Blast!
Nasdaq isn't just about making money; they're on a mission to make the world a better place, one financial market at a time. They want to connect businesses, capital, and those "aha!" moments to boost economies and communities worldwide. They're like the superheroes of finance, fighting for stronger economies, equal opportunities, and a greener planet. They even have a "Purpose Forum" where big thinkers brainstorm how to make finance more awesome 3. Talk about making a difference!
From Wall Street to World Domination: Nasdaq's Epic Journey
Back in 1971, Nasdaq was the new kid on the block, the world's first electronic stock market. They were the rebels who dared to do things differently, and that rebellious spirit still fuels their tech-savvy approach today. They've weathered storms like the dot-com bubble, proving they can handle any financial turbulence. Now, they're not just trading stocks; they're diving headfirst into the exciting world of fintech, bringing innovation to every corner of the financial universe.
Nasdaq's Business Segments: A Thrilling Trio!
Nasdaq's business is like a three-ring circus, with each ring more exciting than the last. They have Capital Access Platforms, Financial Technology, and Market Services, all working together to create a financial extravaganza.
Capital Access Platforms: Your Gateway to Financial Fun!
This is where the magic happens, where Nasdaq helps companies and investors navigate the sometimes-crazy world of capital markets. It's like a financial theme park, with rides like:
Data & Listing Services: Need market data, indices, or analytics? Nasdaq's got you covered! They have a massive collection of listed companies, around 4,000, with a combined market value of about $14 trillion. That's enough to make your eyes pop! These listings cover everything from healthcare to entertainment, so there's something for everyone. And guess what? The Nasdaq Stock Market has three tiers:
Capital Market (NASDAQ-CM): For the little guys, the small-cap companies just starting their financial adventure.
Global Market (NASDAQ-GM): Where the mid-cap companies hang out, showing they've got what it takes to play in the big leagues.
Global Select Market (NASDAQ-GS): The VIP section, where the big-cap companies shine, with the strictest standards and the most impressive financials.
Index: Ever heard of the Nasdaq Composite or the Nasdaq-100? Of course, you have! These indices are like the rock stars of the financial world, and Nasdaq's got a whole bunch of them. The Nasdaq-100, with 100 of the biggest non-financial companies, has been around since 1985, and it's still going strong. It's like the ultimate financial playlist, with companies like Apple and Intel still rocking it after all these years. And get this, these companies are super innovative, investing tons in R&D. They're always looking for the next big thing, and that's what makes them so exciting.
Workflow & Insights: Nasdaq's not just about numbers; they're about helping companies do good. They offer tools and advice for investor relations, public relations, and ESG (environmental, social, and governance) initiatives. They even have Directors Desk, a tool to help boards of directors keep things running smoothly. It's like a backstage pass to the world of corporate governance.
Financial Technology: Where Tech Meets Thrills!
This is where Nasdaq gets really geeky, using technology to make the financial system faster, safer, and more transparent. It's like a high-tech laboratory where they're cooking up the future of finance.
Financial Crime Management Technology: Think of Nasdaq as the financial police, using their super-smart surveillance tech to catch the bad guys and keep the markets clean. They're like the cybersecurity superheroes, protecting the financial system from those who want to mess things up.
Regulatory Technology: Regulations can be a real buzzkill, but Nasdaq's here to help. They offer software that helps banks and other financial institutions stay on the right side of the law. It's like having a financial guardian angel, making sure you don't accidentally break any rules.
Capital Markets Technology: Nasdaq's tech is so awesome that over 130 markets around the world use it. They're like the masterminds behind the scenes, making sure the financial markets run like a well-oiled machine.
Market Services: The Main Event!
This is where the action happens, where Nasdaq operates exchanges and marketplaces for all sorts of assets, from stocks and bonds to commodities and ETPs. It's like a giant financial playground, with something for every investor. They even have a "Total Markets" initiative to make the markets more accessible and exciting. It's like they're throwing a party for the whole financial world!
Nasdaq Private Market: The Exclusive Club!
Nasdaq's not just about the public markets; they have a secret hideout for private companies called Nasdaq Private Market (NPM). It's like an exclusive club where private companies, employees, and investors can connect and make deals before those companies go public. They offer a bunch of cool services, like a trading marketplace, liquidity programs, and even data and analytics. It's like a sneak peek into the world of private equity, where the real high rollers play.
Clients: From Big Shots to Little Guys!
Nasdaq's client list is like a who's who of the financial world, with everyone from Apple and Microsoft to BlackRock and JP Morgan Chase. They even work with regulators and central banks, making sure the whole financial system is safe and sound. It's like they're the ultimate financial matchmaker, connecting everyone who wants to play in the markets.
Global Domination: Nasdaq's World Tour!
Nasdaq's not just an American company; they're everywhere! They have offices in North America, Asia-Pacific, Europe, and the Middle East. Their technology powers markets in over 50 countries. They're like the rock stars of finance, with a global fan base that can't get enough of their awesome tech.
Competitors: The Rival Bands!
Every rock star has rivals, and Nasdaq's no different. They're competing with other big names like Intercontinental Exchange (ICE), Cboe Global Markets, and the London Stock Exchange Group. It's like a battle of the bands, with each company trying to outdo the other with the coolest tech and the most innovative solutions.
Growth Prospects: mid to high single digit
Here’s the medium term outlook they presented in the FY 24 results, they cannot give a total net revenue outlook, which is really not a problem. I don't expect a CEO to always give an outlook, it’s a really hard task and sometimes you just can’t.
Financial Performance: Making it Rain!
Nasdaq's not just about innovation; they're about making money, and they're doing it well. In 2024, they raked in $7.4 billion in revenue, a whopping 22.03% increase from the previous year. but these numbers include Adenza, the real numbers are in the high single digits, so good but not impressive.
Valuation, metrics and ROIIC
Price : 83$
Current PE : 42
Price to Free cash flow : 32
FCF yield : 3,6%
EPS : 1.9
FCF per share : 3
ROIC : 12%
So to get 15% return you’ll need 12-15% FCF growth and a final P/FCF between 25/30.Â
Not bad but not a great deal. a company with this growth should be in the 20-22 P/FCF so not that far, but we’re currently at 32. But looking at previous growth can we expect 12-15%?Â
During the past 10 years, the average Free Cash Flow per Share Growth Rate was 12.90% per year
Price-to-Free-Cash-Flow Range Over the Past 10 Years Min: 14.51 Â Med: 18.66 Â Max: 47.57
keep in mind that Currently it sits at 32.36
Those numbers look not so bad, achieving 15% may be hard, but 12% can be done when you had less than around 13% for the past decade.
It’s mostly the P/FCF that bothers me. We know that valuation is linked to Interest rates and that the past decade had been a very low interest rates era. but the relation is the inverse of what we see here. Normally when rates are very low, valuations are very high but in this case it’s the other way around and paying 32 times free cash flow for a company growing at 10-13% is not a good deal at all.
ROIIC, when growth comes at a very high price.Â
Let's talk about the ROIIC now, as you know what we love to see is a company that can reinvest profits at high rates of return, and ROIC doesn’t give us this information because ROIC doesn’t take into account only the incremental investments.
So how do we know how much profit was invested? well for that we look at the change in the equity statement or, sometimes companies list what they do with the money, Nasdaq INC goes in the second category.Â
So reading this, the numbers that matter to us, are the free cash flow and the uses of cash flow.Â
Basically they earned 1,6B$, on those 1,6B they gave back 700 to shareholders through dividends and buyback so half of it, it’s a healthy number for a mature company.
Which leaves us with 900M to either invest in growth, M&A or debt repayment. To see what has been really reinvested we should look at the retained earnings on the balance sheet.Â
10K for 2024 is not yet available so we’ll use 2023 :
Retained earnings balance grows around 600M per year and to see what’s the ROIIC, we should see how much additional earnings they made with those 600M. The thing is, we don’t even need to do this for this specific case, just look at the line net income attributable to nasdaq, there is no growth! Even worse, it's decreasing. So you’re telling me that the company is investing more and more money, but doesn’t produce any additional earnings? Well, it’s pretty much the case for the last 3 years but don’t get me wrong i’m not yet saying that the company is shit.Â
Do you want an alarming thing? Net income for 2024 grew 5.5% but they got so diluted due to the Adenza M&A, that EPS fell 7.5%. The past 5 years they bought back 5% of the outstanding shares, but the numbers of outstanding shares grew 12%.
Conclusion: Nasdaq's Wild Ride and a Few Bumps in the Road!
Nasdaq, bless their cotton socks, has come a long way, baby! From a scrappy upstart to a global fintech giant, they've certainly earned their stripes (and probably a few gray hairs along the way). They're like that energetic kid in class who always has a new invention brewing—constantly pushing boundaries and trying new things.
However, even the most brilliant inventors hit a snag now and then. While Nasdaq's growth has been, shall we say, "interesting," their capital management and those eyebrow-raising investments that don't seem to do much are giving us a serious case of the jitters. It's like watching someone pour money into a bottomless pit and hoping for a fountain of gold. We're starting to wonder if they're following a treasure map or just throwing darts at a dartboard.
So, while we applaud Nasdaq's adventurous spirit and their undeniable impact on the financial world, we also have to raise a flag (or maybe a few dozen). It seems they might need to tighten the purse strings and maybe, just maybe, focus on making sure those investments actually pay off. After all, even the wildest rollercoasters need to stay on track!
Last word: Not investable for us for these reasonsÂ
No growth for 5 years/
Share dilution for a company with a market cap of 50B and growing in low double digits is unacceptable.Â
Very low Return investment and return on incremental investments.Â
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