Nasdaq Third Quarter 2026 Results - NASDAQ INC

Financial Performance:

• Net revenue reached $1.5 billion, a 14% year-over-year increase, driven by $1.2 billion in solutions revenue (up 18%) and $309 million in market services revenue (up 2%).
• Diluted EPS grew 19% to $1.04, supported by a 16% increase in operating income and share repurchases.
• Overall Annualized Recurring Revenue (ARR) grew 14% YoY to $3.4 billion, with record FinTech ARR growth of 18%.
• Operating expenses were $638 million (up 12%), resulting in an operating margin of 57% and EBITDA margin of 60%, both up 1 percentage point YoY.
• Free cash flow was $616 million in the quarter, with a $2.3 billion generation over the trailing 12 months at a 98% conversion ratio.
• Gross leverage stood at 2.5x; the company returned nearly $500 million to shareholders via dividends ($173 million) and share repurchases ($323 million).

Guidance and Future Outlook:

• Updated non-GAAP expense guidance for 2026 to $2.550–2.580 billion (from $2.530–2.770 billion), driven by M&A costs and strong revenue performance.
• Maintained non-GAAP tax rate guidance of 22.5%–24.5% for 2026.
• Scheduled launch of 23.5 trading hours on NASDAQ Stock Market for December 6, 2026.
• Planned launch of the NASDAQ Equity Token in the first half of 2027.
• Foreseeing durable growth from AI, passive investing, and the transition to "always-on" markets; solutions businesses are expected to grow faster than market services long-term.

Business Segments and Product Lines:

• Capital Access Platforms: Revenue up 20% ($641M); welcomed 15 new listings (including top 8 IPOs) raising $32B; data business saw 34% growth in enterprise licenses; index franchise achieved record $141B net inflows over 12 months.
• Financial Technology: Revenue up 16% ($529M); Financial Crime Management grew 23% with 70 paying clients for agentic AI; Regulatory Tech grew 13%; Capital Markets Tech grew 14% (18% ARR) with HSBC expanding Calypso partnership.
• Market Services: Revenue up 2% to $309M (record Q3); acquired Level Markets (3rd largest ATS) to expand off-exchange capabilities; strong performance in U.S. equities capture and options volume.
• New Initiatives: Launched "Digital Liquidity Networks" to unify tokenization and always-on market strategies; signed partnership with Robinhood for agentic trading data; expanded Juniper Square collaboration for private market intelligence.

Market and Competitive Landscape:

• Maintains a leading market share position in U.S. multi-listed options with a gap of over 500 basis points.
• Positioned at the center of secular trends: passive investing growth, direct retail ownership, AI adoption, and the shift to 24/7 markets.
• Competition is evident in the IPO pipeline, though the firm maintains a 74% win rate year-to-date and a 79% win rate in Q3.
• NASDAQ is actively shaping the "always-on" market infrastructure, evidenced by the Bruce ATS agreement for 24/7 U.S. equities trading.

Risks and Challenges:

• IPO environment shows modest softening in recent weeks, with some companies reevaluating timing, though the pipeline remains robust.
• Regulatory uncertainty regarding SEC's "innovation exemption" for Tokenized Securities (TSVs); NASDAQ opposes sidecar experimentation outside Reg MS and will opt out of TSV listings.
• Cybersecurity and financial crime risks are driving urgent demand for AI-driven fraud detection but represent a complex industry-wide challenge.
• High volatility or specific market conditions can impact capture rates in equity and options segments.

Management Commentary and Tone:

• Management tone was highly confident, emphasizing disciplined execution and resilience across all divisions.
• CEO Adina Friedman highlighted NASDAQ's role as a "trusted transformation partner" shaping the next generation of financial markets.
• CFO Sarah Youngwood noted the strength of the business model, citing strong organic growth and the successful integration of cloud/AI strategies.
• Leadership emphasized the strategic shift toward "agentic AI" and cloud-based managed services as key value drivers.

Analyst Questions and Answers:

• AI Monetization: Confirmed 850+ clients using Verifin's agentic workforce; pricing strategy involves a "try before you buy" model transitioning to paid contracts, with immediate upcharges for MCP data connectors.
• Tokenization: Discussed the "NASDAQ Equity Token" standard and partnerships (Kraken, DTCC, Vanguard/Wellington); focus is on collateral mobility (treasuries, repos) as the immediate commercial opportunity before retail equity settlement.
• Financial Crime: Highlighted the urgency of AI-driven fraud and AML; growth driven by consortia data lakes and GenAI capabilities that reduce false positives.
• M&A Strategy: Prioritizing organic growth and small bolt-on acquisitions (e.g., Level, Dacity) over large-scale M&A; strong FCF supports continued share buybacks.
• Cloud Migration: Significant runway remains for Axiom and Calypso clients moving from on-prem to cloud, expected to yield a 1.5x uplift in ACV and higher SaaS ARR ratios.

Other Key Points:

• Completed acquisition of Level Markets on October 15, adding 2,500 institutional and retail brokerage clients.
• Launched "agentic AI" capabilities within Calypso and surveillance platforms to support 24/7 risk management.
• Index business launched 32 new products in Q3, with 50% being international; 35% of trailing 12-month inflows driven by products launched in the last five years.
• Exited sustainability advisory business and sold materials management business (Ossapiens) to focus on core strategic pillars.
• Revenue contribution from Level Markets expected at $7–8 million in Q4 2026.