To many Nasdaq has a clear identity — the eye-catching, fast-paced equities exchange on business TV that hosts the pioneers of the US technology industry, such as Microsoft, Google and Apple.
However, as even the company admits, this perception is a little dated. When equities profit margins were squeezed it long ago diversified into markets such as options and selling trading technology.
But since the botched Facebook listing in 2012 it has seen all of the big tech flotations of recent years — such as Alibaba, Twitter and Snap — go to its great rival the New York Stock Exchange.
These high-profile deals also have been few and far between of late as the most recent crop of innovators has opted to stay private.
“There’s a lot of misconception about the exchange business — they’re really tech businesses now. When I talk to portfolio managers the first thing they think is NYSE and Nasdaq and tech listings,” says Kyle Martin, an analyst at Westwood Holdings Group.
As markets and exchanges change, Nasdaq too is evolving. Adena Friedman became chief executive in January, taking over from Bob Greifeld, Nasdaq’s longest-serving head and the architect of the modern business.
Ms Friedman, who rose through the ranks from the mid-90s heydays, has her sights set on adapting to 21st century economic developments, such as passive investing, data management, artificial intelligence and even the so-called gig economy.
“We are not doing an about-face or even a 90 degree turn,” she says. “These trends are going to dominate the future. Nasdaq is a global technology company focused on the capital markets.”
After a company-wide review Ms Friedman has determined the future lies in technology, data and analytics, which collectively accounted for about 35 per cent of net sales in the first half of this year.
That compares with 37 per cent for market services, the unit that contains its trading businesses in equities, options, derivatives, fixed income and energy markets. The rest is the listing business and corporate services.
“It is a recognition and realisation of where we can really define ourselves and going after the growth opportunity in our space,” says Ms Friedman.
Advancements such as cloud computing, machine intelligence, even emerging blockchain technology, make the moves possible now, she says.
She has already taken some steps to a reorganisation. In July it bought Sybenetix, a UK software company that uses artificial intelligence to snuff out rogue traders, and in September announced the $705m purchase of eVestment, an analytics business for asset managers. Ms Friedman’s first moves as chief executive included taking a $578m charge related to its eSpeed business and closing its London futures venue.
Analysts applaud Nasdaq’s plans to spend money on higher-growth emerging businesses, after spending heavily on trading businesses that faced pricing squeezes and a dependency on market volatility. However, they caution that some fund managers still need to catch up.
“Investors may struggle with understanding what exactly is Nasdaq,” says Alex Kramm, a senior research analyst at UBS, who has a buy recommendation on the stock, “a collection of lot of different businesses that seem to make sense together, but clearly there are a lot of different things in there.”
Nasdaq plans to accentuate some parts of its business, such as capitalising on its brand to sell technology for matching buyers and sellers of financial assets — now used by 85 markets globally as well as 31 in-house ones at Nasdaq — beyond financial assets.
“If you look at the elements of what is happening in the economy today, we are moving much more to electronic marketplaces — pretty much trading everything and that is going to continue,” says Michael Splinter, chair of Nasdaq’s board.
The company is looking at the gig or “sharing economy”, which is expected to grow from $14bn in 2014 to $335bn in 2025, according to Brookings. Futures exchanges for advertising and loyalty points using adapted versions of Nasdaq’s matching engine are expected to launch in the fourth quarter and first quarter of 2018, respectively. It is also looking at possibilities for areas including reinsurance, container space and ticket sales.
Crucially Nasdaq has also signalled it is willing to exit businesses and is exploring a potential sale for public relations and digital media assets. “Capital allocation is the most important and most challenging of a CEO’s jobs,” says Mr Martin of Westwood. “Not being involved in empire-building is always good.”
The job now is to convince investors. “If successful, investors should be willing to pay a higher multiple for [Nasdaq] than the current mix of businesses she inherited as CEO. It’s still too early to draw conclusions but I believe the vision has merit,” says Stephen Rigo, an analyst at ClearBridge, which owns Nasdaq stock.
One thing is clear. Even with the strategic “pivot”, as Nasdaq calls it, Ms Friedman is adamant in her commitment to listings and the core US exchange it is best known for. “The equity exchange is the cornerstone of who we are,” Ms Friedman says. “It is the foundation of Nasdaq.”
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