Nasdaq: exchange place

The mis-timed release of Twitter's earnings last week cast light on Nasdaq's challenge: equity trading is not like it used to be. Five years ago, Nasdaq's market services comprised two-thirds of gross profits; today they are less than half.

Nasdaq has been busy, then, tapping fresh sources of growth. A burst of acquisitions has expanded offerings in areas such as investor relations and new products, including smart beta indices. In fact, Nasdaq's fastest-growing segment is the one that provides investor relations (which Twitter uses), as well as back-end technology services for roughly 80 exchanges around the world.

The company makes money in four ways: market services, which includes things such as cash equity trading, derivative trading, fixed income, and broker services, contribute about half of Nasdaq's pre-tax operating profit but growth has been elusive. Listing services, which competes with NYSE and other bourses for new listings, has seen revenues flat over the past three years and contributes just a tenth of operating profits. (Nasdaq lost the Twitter IPO to NYSE in 2013.) Information services, such as data products and index licensing, is Nasdaq's highest-margin business: the area contributes 40 per cent of profits and is growing. And technology services, which provides back-end support for other exchange platforms as well as corporate services, is still small (6 per cent of profits) but growing very fast (profits rose more than 40 per cent in 2015).

Diversification through acquistion is expensive, though, and Nasdaq has been trying to balance this with returning cash to shareholders. Net debt stands at $1.8bn, roughly two times operating income. The dividend was increased by two-thirds in the most recent earnings. Nasdaq's business today is less risky than when the great majority of revenues were transaction-based. But growth may still be elusive.

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