MOON ATS Overnight Trading Will Expand Market Access And User Engagement

Key Takeaways

• OTC Markets Group launches new offerings to increase trading volume, user engagement, and market access, potentially boosting revenue and enhancing client value.
  
• Strategic initiatives in non-U.S. securities and Market Data aim to expand participation, diversify revenue, and improve operational efficiencies, positively impacting earnings and margins.
  
• Decreases in subscribers and user revenues, along with flat operating expenses, threaten revenue growth amidst potential volatility in market participation.

Catalysts

Operates regulated markets for trading 12,000 U.S.

• The launch of OTC Overnight and the inclusion of MOON ATS for overnight trading may increase trading volume and user engagement by offering extended trading hours, potentially driving higher revenue from transaction fees and enhancing client value through greater market access, particularly in global markets.
  
• The new market, OTCID, set to launch in July 2025, aims to streamline market structures and improve issuer engagement through mandatory disclosures, which could enhance market quality and price efficiency, potentially bolstering net margins by attracting more engaged issuers and investors.
  
• Emphasizing growth in non-U.S. securities, which comprised over 90% of the dollar volume traded, signifies an avenue for expanding market participation and increasing revenue opportunities through diversified market offerings, potentially leading to heightened earnings from increased trading activity.
  
• Initiatives to enhance the Market Data business by focusing on EDGAR Online datasets and other new solutions could unlock new revenue streams and improve data-driven trading decisions, ultimately impacting earnings positively through advancements in information services and analytics.
  
• Integrating broker-dealer platforms and focusing on infrastructure improvements in trading and compliance could lead to operational efficiencies, aligning resources with long-term growth, and marginally improving net margins by optimizing operating costs relative to revenue expansion.

OTC Markets Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming OTC Markets Group's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.3% today to 28.0% in 3 years time.
• Analysts expect earnings to reach $34.4 million (and earnings per share of $2.92) by about January 2028, up from $26.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.6x on those 2028 earnings, up from 23.3x today. This future PE is greater than the current PE for the US Capital Markets industry at 23.1x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.84%, as per the Simply Wall St company report.

OTC Markets Group Future Earnings Per Share Growth

Risks

• The Corporate Services business experienced a reduced number of subscribers with some financially stressed smaller companies dropping from the market due to non-renewals or noncompliance, which can negatively affect revenues.
  
• Market Data Licensing revenues declined by 1%, with significant reductions in pro and non-pro user revenues due to decreased user counts, impacting the overall earnings from this segment.
  
• EDGAR Online faced a 15% decrease in revenues because of subscriber cancellations, leading to lower contribution towards overall revenue and profits.
  
• Operating expenses are flat with future increases in compensation and IT infrastructure expenses likely due to ongoing investments, potentially suppressing net margins if not matched by revenue growth.
  
• Trading volumes and market participation remain unpredictable, indicating potential volatility in revenue generation from market services—a risk to stable earnings.

Valuation

• The analysts have a consensus price target of $63.0 for OTC Markets Group based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $122.6 million, earnings will come to $34.4 million, and it would be trading on a PE ratio of 24.6x, assuming you use a discount rate of 6.8%.
• Given the current share price of $52.86, the analyst's price target of $63.0 is 16.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.