Nasdaq, Inc. (formerly Nasdaq OMX Group)

Nasdaq, Inc. is a global financial technology, trading, and information services corporation based in the United States. While most famous for operating its flagship Nasdaq stock market, the company is a transatlantic powerhouse that also owns and operates eight European stock exchanges. It's a key player in the global financial system, providing the technology and infrastructure that powers markets around the world. The company was known as the Nasdaq OMX Group from 2008 until 2015, following a landmark merger between the American Nasdaq and the Swedish-Finnish exchange operator OMX AB. Today, Nasdaq, Inc. is much more than just a place to trade stocks; it's a diversified technology provider, selling trading software, data, and listing services to other exchanges, brokers, and corporations globally. For an investor, understanding Nasdaq is to understand the very plumbing of modern capital markets.

The story of Nasdaq, Inc. is a classic tale of a bold American innovator joining forces with a seasoned European powerhouse. The combination created a truly global competitor in the high-stakes world of stock exchanges.

Born in 1971, the Nasdaq (an acronym for National Association of Securities Dealers Automated Quotations) shattered the old world of physical trading floors. It was the world’s first electronic stock market, a disruptive force that used computers to connect buyers and sellers directly. Its innovative, tech-forward approach made it the natural home for the world’s most dynamic and groundbreaking companies. For decades, it has been the premier listing venue for technology titans like Apple, Microsoft, and Amazon, making its name synonymous with growth and innovation.

Meanwhile, across the Atlantic, OMX AB was a dominant force in Northern Europe. It operated the stock exchanges in several Nordic and Baltic countries, including Sweden, Finland, and Denmark. OMX was also a respected technology provider, developing and selling the trading systems that many other exchanges used. It was a stable, well-run operator with deep roots in the European financial landscape.

In 2008, these two entities merged to form the Nasdaq OMX Group. This was a strategic masterstroke, creating a company with a commanding presence on both sides of the Atlantic. It combined Nasdaq's brand recognition and roster of high-growth companies with OMX's European market access and technological prowess. In 2015, the company simplified its name to Nasdaq, Inc. to reflect a more unified global identity and its evolution into a diversified financial technology company.

Thinking of Nasdaq, Inc. as just a stock exchange is like thinking of Amazon as just an online bookstore. The company's business is far more diverse and sophisticated. Its revenue comes from four main areas:

• Market Services: This is the traditional exchange business—earning fees from the trading of stocks, derivatives, and other securities. Its profitability here is often tied to overall market volatility and trading volume.
• Corporate Platforms: Nasdaq charges fees to companies for listing on its exchanges. It also sells services to them, such as investor relations tools and governance software, helping public companies manage their responsibilities.
• Investment Intelligence: This segment includes the lucrative business of selling market data and analytics. It also involves licensing its famous indexes, like the tech-heavy Nasdaq-100 and the broad Nasdaq Composite, to providers of ETFs and other financial products.
• Market Technology: This is perhaps the most underrated part of its business. Nasdaq sells its cutting-edge trading and surveillance technology to over 130 other marketplaces, regulators, and clearinghouses around the globe. It's essentially selling the “picks and shovels” for the entire financial industry.

For a value investor, Nasdaq, Inc. (ticker: NDAQ) presents a fascinating case study. It's not a dusty, forgotten industrial company, but its business model has many of the characteristics that value investors cherish. The business has a powerful and durable competitive advantage, or “moat.”

• Network Effects: The more companies that list and the more investors that trade on Nasdaq, the more valuable the exchange becomes for everyone, creating a virtuous cycle that is difficult for competitors to break.
• Toll Road Business Model: Exchanges are the essential infrastructure of capitalism. Like a toll road operator, Nasdaq collects a small fee on a massive volume of transactions, making it a highly profitable and scalable business.
• Sticky Technology Sales: Once another exchange or institution builds its operations on Nasdaq's technology, the switching costs are immense, leading to a reliable, recurring revenue stream.

When analyzing NDAQ as a potential investment, consider its valuation relative to peers like CME Group or Intercontinental Exchange. Pay close attention to the growth in its higher-margin, non-trading businesses, particularly Market Technology and Investment Intelligence. While the trading business can be cyclical, these other segments provide stability and long-term growth, making Nasdaq a compelling “growth at a reasonable price” candidate for a discerning investor's portfolio.