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Nasdaq’s Shift into High-Growth Financial Crime Solutions


The mere mention of “Nasdaq” typically brings to mind the dominating presence of hot tech companies in the market. However, Adena Friedman, the Chair and CEO of Nasdaq, envisions the company itself becoming synonymous with these tech giants.

Achieving this vision relies on the successful execution of two significant acquisitions and gaining further support from Wall Street. While Nasdaq’s core focus has always been providing platforms and technology for capital markets, its recent endeavors have expanded into the broader financial services industry. As a result, trading now accounts for a smaller portion of total revenue, while the company has ventured into offering innovative solutions to address diverse challenges such as sustainability and financial crime. This strategic shift has proven fruitful, contributing to revenue growth and surpassing earnings expectations in Nasdaq’s latest quarterly results.

Nonetheless, embracing this new direction hasn’t come without a price. Nasdaq invested $2.75 billion in acquiring fraud detection specialist Verafin in 2021. Additionally, the company embarked on its largest deal to date, spending $10.5 billion on purchasing risk and regulatory software company Adenza, a move that Morningstar analyst Michael Miller warns carries substantial execution risks owing to its scale. However, the potential rewards appear to outweigh the risks.

Nasdaq highlights the enormity of the financial crime problem by revealing that illicit funds amounting to $3.1 trillion had flowed through the global financial system in the previous year alone. When factoring in fraudulent transactions and other illicit activities amounting to approximately $500 billion, the total financial crime problem balloons to nearly $4 trillion. Adena Friedman, in a panel discussion with ‘s Editor-in-Chief David Cho, emphasized Nasdaq’s dedication to combatting financial crime and managing the complex regulatory reporting requirements faced by banks.

Capitalizing on regulations allowing banks to share data with neutral third parties to combat financial crime, Nasdaq leverages this opportunity by sourcing data from 2,500 banks representing $6 trillion in assets. Through the utilization of artificial intelligence, Nasdaq employs data analysis techniques to identify and prevent illicit financial activities.

Nasdaq is steadfast in its pursuit of not only providing advanced anti-financial crime solutions but also offering comprehensive technology to manage the ever-evolving financial landscape. Adena Friedman’s ambitious acquisitions and the company’s strategic shift position Nasdaq as a force to be reckoned with in the fight against financial crime.

Nasdaq’s Anti-Fin Crime Suite Shows Impressive Growth

Nasdaq, a prominent player in the financial market, is experiencing significant growth in its anti-financial crime suite. According to CEO Friedman, this suite, along with Nasdaq’s broader reg-tech and capital markets technology suite, is the fastest-growing segment of the company. Despite a lower margin profile due to investments made to drive growth, this division has been flourishing, boasting an annual growth rate of 18% to 23%.

Additionally, the recent acquisition of Adenza has contributed to Nasdaq’s positive performance. Adenza, a company with a slightly better margin profile than Nasdaq overall, has witnessed growth in the low to mid-teens range. This strategic move has not gone unnoticed on Wall Street, as it has piqued the interest of many analysts.

One particular highlight is the impressive results that Nasdaq has achieved through its association with Verafin. With Verafin’s clientele expanding to include Tier 1 and Tier 2 banking clients, there is immense potential for future growth. Morningstar’s Miller, in agreement with this sentiment, acknowledges that Nasdaq’s partnership with Verafin presents a strong growth runway for the business.

Interestingly, analysts surveyed by FactSet hold a favorable view of Nasdaq’s stock, overwhelmingly recommending it as a “Buy.” None of the analysts surveyed rate it as a “Sell,” and the consensus price target predicts a nearly 10% increase above current levels.

Owen Lau, an Oppenheimer analyst, considers Nasdaq as their top idea for 2024 in the exchange space. Lau expects accelerated organic growth, deleveraging, and an attractive valuation to further contribute to the company’s success. With an optimistic outlook for higher spending on anti-financial crime, a thriving equity market, and an improving IPO market, Lau believes that Nasdaq’s improving macro backdrop will be advantageous.

Currently, Nasdaq stock is trading at a slight discount of 20 times next year’s expected earnings per share, compared to its historical average of 21 times. Lau notes that this valuation presents an attractive investment opportunity for potential investors.

However, there is a possibility for an even more bullish view if Nasdaq can successfully position itself as a technology business rather than just an exchange. By emphasizing its fintech capabilities, Nasdaq could command a higher valuation, potentially surpassing the historical average of 21 times forward earnings.

With Nasdaq’s solid growth trajectory, it is evident that Friedman’s ability to sell Wall Street on Nasdaq’s technological prowess will play a crucial role in its success. The future looks promising for this company as it continues to expand and innovate in the financial market.

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