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On June 12, 2023, Nasdaq (NDAQ) announced its intent to acquire Adenza from Thoma Bravo for ~$10.5B in cash and stock. When making this announcement, it made deleveraging a capital allocation priority.
In my June 13, 2023 post, in which I disclose a new NDAQ position, I state:
I do not like the degree of leverage NDAQ is taking on nor the downgrade in the credit ratings. However, I agree with management's strategy of making transformational acquisitions as opposed to small acquisitions that will not materially impact the company's direction.
Despite the significant increase in debt, NDAQ has demonstrated its ability to reduce leverage. NDAQ is committed to reducing leverage to 4.0x in 18 months and to 3.3x in 36 months at which time I expect rating upgrades from Moody's and S&P Global.
When I last reviewed NDAQ in this July 29, 2024 post, the Q2 and YTD2024 results were the most current and I noted how NDAQ's deleveraging was proceeding according to plan.
With the July 24, 2025 release of Q2 and YTD2025 results, I revisit this existing holding.
Business Overview
The best way to learn about NDAQ is to review its website. Part 1 Items 1 (Business) and 1A (Risk Factors) in the FY2024 Form 10-K are also a great sources of information.
Financials
Q2 and YTD2025 Results
The information presented within NDAQ's Q2 Form 10-Q and earnings presentation is accessible on the company's website.
Conventional And Modified Free Cash Flow (FCF) Calculations (FY2019 - FY2024 and YTD2025)
FCF is a non-GAAP measure, and therefore, the manner in which it is calculated is inconsistent. Many investors deduct CAPEX from OCF to arrive at FCF. In my How Stock Based Compensation Distorts Free Cash Flow post, I explain why I now also deduct stock based compensation (SBC) that is found in the Consolidated Statements of Cash Flows to determine FCF.
The variance in the FCF results NDAQ presents differs from online sources. This is because NDAQ makes a moderate adjustment to account for mandatory net Section 31 fees.
Net Section 31 fees are typically added back when determining FCF because FCF is intended to represent the cash generated by a company's core operating performance, excluding fees and charges that are either non-operating or not reflective of the company’s ongoing cash-generating ability.
Section 31 fees are regulatory transaction fees imposed by the SEC on certain securities transactions to fund its oversight activities. These fees are operating outflows but are often considered non-core or pass-through items, not regular operating expenses managed by the business's own cost structure.
The following reflects NDAQ's FCF calculation for FY2022 - YTD2025.
FY2025 Guidance
The following is NDAQ's current FY2025 guidance.
The $20 million increase in the midpoint of guidance is entirely due to foreign exchange (FX), with no change to the organic expense growth rate implied by the midpoint of guidance. Due to the offsetting positive FX impact on net revenue, management expects the change in FX to have no impact on our operating income.
NDAQ has actioned ~$0.13B of its ~$0.14B efficiency program as of the end of Q2 2025.
There is no change to the FY2025 non-GAAP tax rate guidance of 22.5% - 24.5%.
Risk Assessment
NDAQ provides debt information on its website.
In November 2021, S&P Global raised NDAQ's domestic unsecured long-term debt credit rating from BBB to BBB+.
In December 2022, Moody's raised NDAQ's domestic unsecured long-term debt credit rating from Baa2 to Baa1.
S&P Global lowered NDAQ's rating to BBB from BBB+ and Moody's lowered the rating to Baa2 from Baa1 in June 2023 when NDAQ announced it had signed an agreement to acquire Adenza Group.
On March 31, 2025, Moody's upgraded NDAQ's domestic unsecured long-term debt credit rating from Baa2 to Baa1. S&P Global's rating remains at BBB but the outlook is positive.
Moody's rating is the top tier of the lower medium grade investment grade category while S&P Global's rating is the middle tier of the lower medium grade investment grade category. The ratings define NDAQ as having adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments.
NDAQ's leverage is now 3.2x. This is considerably sooner than anticipated. Furthermore, the next maturity date of one of NDAQ's credit facilities is June 2026 at which time $0.5B is to be repaid. NDAQ now has greater flexibility in how it wants to deploy its capital.
The following reflects NDAQ's net debt position at the end of Q2 2025.
Dividend and Dividend Yield
NDAQ's dividend history is accessible here.
In Q2 2025, NDAQ distributed a $0.27/share dividend for a total of $0.155B, representing a 34% annualized payout ratio. This is slightly below NDAQ's 35% - 38% payout ratio targeted for the next 3 or 4 years.
While some investors pay particularly close attention to dividend metrics, the focus should be in total potential investment return. It makes little sense for investors to fixate on dividends if the company's share price is likely to remain stagnant for a prolonged period.
In the 6 months ending June 30, 2025, NDAQ repurchased 2,789,445 shares at an average price of $77.07 for a total of ~$0.215B.
In September 2023, NDAQ's Board approved an increase in its share repurchase authorization to a total of $2B. As of June 30, 2025, the remaining aggregate authorized amount under the existing share repurchase program was $1.5B.
Debt reduction has been a priority following the Adenza acquisition. NDAQ, however, continued its share repurchases to offset employee stock compensation.
Management has previously communicated that after reaching the leverage target level, the vast majority of remaining FCF will be applied toward share buybacks. In addition, management has stated that it does not anticipate making any significant acquisition-related capital allocation decisions that would deter the company from sizable stock buybacks over the coming years.
Stock Splits
NDAQ initiated a 3 for 1 stock split in 2022.
Valuation
NDAQ's share price as I compose this post on July 25 is ~$95. Management does not provide earnings guidance, and therefore, I extrapolate YTD2025 results and use the current forward adjusted diluted EPS broker estimates to estimate NDAQ's valuation. NDAQ's forward adjusted diluted PE levels are:
- FY2025 – 18 brokers – mean of $3.32 and low/high of $3.18 – $3.41. Using the mean estimate, the forward-adjusted diluted PE is ~28.6.
- FY2026 – 18 brokers – mean of $3.70 and low/high of $3.45 – $3.86. Using the mean estimate, the forward-adjusted diluted PE is ~25.7.
- FY2027 – 13 brokers – mean of $4.14 and low/high of $3.81 – $4.38. Using the mean estimate, the forward-adjusted diluted PE is ~23.
In the first half of FY2025, NDAQ generated $1.969 and $1.829 of FCF calculated using the conventional and modified methods. If NDAQ can generate ~$4.00 and ~$3.70 for the year, the forward P/FCF using a ~$95 share price is ~23.75 and ~25.7.
NDAQ's FCF conversion ratio has been greater than GAAP earnings in recent years and the variance between diluted earnings and adjusted diluted earnings is not that material. It is not surprising, therefore, that NDAQ's valuation using FCF is somewhat superior to when EPS are used.
NDAQ's valuation at the time of prior review has been lower than the current valuation. This is not surprising given the appreciation in NDAQ's share price over the past 1.5 years far exceeds the appreciation in its underlying results.
Gauging a company's valuation is heavily dependent on our assumptions. A significant component of NDAQ's revenue and earnings is derived from its Market Services and Capital Access Platforms. The performance of these business segments is inherently volatile so trying to predict how NDAQ is likely to perform a few years into the future strikes me as being a crapshoot. I am, therefore, very reluctant to rely on earnings estimates beyond the current fiscal year.
Having said this, investor interest in equity investing remains robust and a greater degree of trading activity bodes well for NDAQ's results!
Final Thoughts
In my June 13, 2023 post, I disclosed that I had initiated a 500 share position in a 'Core' account within the FFJ Portfolio at ~$51/share on June 12, 2023. I subsequently acquired another 100 shares at ~$50.75 on July 19 and disclosed this purchase in this July 20, 2023 post. With the automatic reinvestment of dividend income, I now hold 612 shares. My NDAQ exposure is relatively small, and therefore, it is not remotely close to being a top 30 holding.
My Final Thoughts reflected in a prior post remain unchanged.
When I initiated my NDAQ position, I noted that the success of the Nasdaq 100 index made NDAQ sensitive to the volatile technology sector thus leading to volatile quarterly results. To reduce this volatility, NDAQ undertook a strategic review which led to the beefing up of its anti-financial-crimes business (now known as regulatory technologies).
Sensing that NDAQ's strategic direction would lead to more stable results (higher annual recurring revenue (ARR)), I envisioned an increase in NDAQ's earnings multiple once NDAQ achieved its deleveraging objectives.
The benefits from the Adenza acquisition, however, will not happen overnight. NDAQ has higher interest costs resulting from the issuance of additional debt to assist in the financing of the acquisition. Its earnings are also spread over a larger number of shares; Thoma Bravo likely negotiated the receipt of NDAQ shares as partial compensation for the Adenza sale with the expectation that NDAQ's future value would be much higher.
In the short-term, investors should expect muted results from NDAQ. Once it reduces its Gross Debt / Non-GAAP EBITDA to target levels and the Adenza business is demonstrating steady growth, I expect NDAQ's financial picture will permit it to aggressively resume share repurchases. This should contribute to stronger future EPS results.
Although I am receptive to increasing my NDAQ exposure, I can not justify doing so at the current valuation. Using current earnings and cash flow estimates, I want NDAQ's share price to retrace to at least the low $80s before I consider increasing my exposure.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long NDAQ.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
