- Operates OTCQX Best Market, OTCQB Venture Market and Pink Open Market for 10,000 US and global securities
- Provides services in three core areas that are essential for more efficient financial markets
- Delivers trading services, market data, and corporate services
What the OTC Markets Group does:
OTC Markets Group Inc (OTCQX:OTCM) provides the perks and benefits of public trading to a wide spectrum of US and global companies.
It operates the OTCQX Best Market, the OTCQB Venture Market and the Pink Open Market for 10,000 US and global securities. The New York-based operator of financial markets has over 460 securities from 27 countries trading on its OTCQX Best Market.
The company’s sophisticated trading system directly links a diverse network of broker-dealers that provide liquidity and execution services.
The company has a well-known backstory. It was established in 1913 as the National Quotation Bureau. For decades, it reported quotations for both stocks and bonds in the paper-based Pink Sheets and Yellow Sheets respectively. In 1997, the company was purchased by a group of investors led by current CEO R Cromwell Coulson. Three years later, it introduced its flagship real-time electronic quotation service and soon changed its name.
Coulson, a former institutional trader and portfolio manager, is a strong advocate for improving access to capital for small companies and empowering investors with information. As a result, the OTC Markets Group now provides services in three core areas that are essential for better-informed and more efficient financial markets:
- Trading Services - Through OTC Link ATS and OTC Link ECN, its SEC-regulated Alternative Trading Systems, the OTC Markets Group connects a network of US broker-dealers to provide liquidity and execution services for securities on its markets.
- Market data - Investors have access to data on more than 10,000 securities through multiple channels including Bloomberg, REDI Technologies and Thomson Reuters. It also offers a suite of subscription-based products and tools designed to automate critical compliance processes in the OTC and small-cap space. This firm’s new stock promotion files, increases transparency and helps address the market-wide challenges presented by fraudulent stock promotion.
- Corporate Services - Along with developing new business for its OTCQX and OTCQB Markets the company’s corporate services team supports issuers with a suite of disclosure and information services. The client relations team helps to maximize the visibility of companies and provides them with a suite of investor engagement tools.
How is it doing:
The OTC Markets Group recently posted its eleventh consecutive quarter of revenue growth. In November, it posted third-quarter results that saw revenue rise 7% to $15.8 million, compared to $14.8 million in the same quarter a year earlier.
Significantly, all three of its business lines contributed quarter over quarter revenue growth, with more companies trading on the OTCQX Best Market, more users of its industry-leading compliance analytics products, and continued growth in volumes traded on the OTC Link ECN, the primary drivers.
The company reported 8% growth from its corporate services business, driven by an increase in the number of companies on its OTCQX market, as well as price increases for renewing subscribers on the OTCQB market, which offset a slight decline in the number of companies on that market.
Meanwhile, market data licensing revenue saw a 6% jump, with increased usage of its suite of data license products, including its compliance analytics products.
OTC Link revenue increased 6% over the prior-year quarter. The increase was driven by revenues from its OTC Link ECN as well as an increase in revenue from quotes and messages on its OTC Link ATS.
The company reported net income of $4 million for the third quarter and diluted earnings per share on a GAAP basis of $0.33.
It announced a special dividend of $0.65 per share, and a fourth-quarter dividend of $0.15 per share, marking the 44th consecutive quarterly dividend and eighth consecutive special dividend. Total shareholder return has averaged 41% over the past five years.
The OTC Markets Group has been making alliances and investments to keep it at the forefront of innovation. It’s predictable cashflow generation from subscription-based offerings allows for Investment in products and technologies that will deliver long-term sustainable earnings growth.
Last October, the company announced a strategic alliance with North Capital Investment Technology Inc to provide companies with access to a technology platform that enables them to cost-effectively raise capital online.
Later in January 2019, the OTC Markets Group announced the acquisition of the Virtual Investor Conferences business from PR Newswire LLC.
Then in February 2019, the company announced the acquisition of Qaravan Inc, a leading provider of software and analytics to the US banking sector.
Inflection points:
The OTC Markets Group is gaining traction through its tie-up with North Capital Investment Technology as it provides OTCQX and OTCQB companies access to a tech solution that allows them to efficiently manage a range of securities offerings online. North Capital's technology and ancillary offerings provide issuers with an automated workflow that streamlines the investment process.
Continued growth in volumes traded on its OTC Link ECN will be a key revenue driver for the OTC Markets Group along with swelling membership.
The company’s top line will also continue to see a bump as more users flock to its new industry-leading compliance analytics products.
Significantly, the company’s Virtual Investor Conferences (VIC) platform is giving “mom-and-pops, family offices, second, third, fourth-tier institutional funds” access to a diverse, and broad group of companies. The VIC platform essentially allows investors to interact directly with executives and participants through live online webcasts and access materials and annual reports, investor kits, surveys and other investor materials from a virtual "exhibit hall."
The company is tapping into a big opportunity as the VIC platform provides companies with visibility and big cost savings. Instead of schmoozing in long drawn-out conferences, taking expensive flights and away-days, the VIC platform relies on the internet to gather people in one place, and acts as the glue that keeps companies and investor networks together.
The company is also boosting its international presence via a new London office.
The OTC Markets Group has a strong war chest, and is willing to prudently deploy capital to take advantage of M&A opportunities that can be accretive to earnings within two years.
The corporate strategy team has identified that opportunities exist in adjacent verticals including SAAS Solutions in the regulatory compliance space, online capital raising tools, and the private markets landscape.
What the boss says:
“We achieved record revenues in the third quarter and have continued to focus our efforts on generating value from the significant investments we have made during 2019 — in our facilities, in our technology platform and in our people,” said OTC Markets Group CEO R. Cromwell Coulson.
“We completed upgrades to our primary and secondary data centers ahead of schedule and with no interruption to our business. We remain committed to enhancing our value proposition and continuing to deliver public markets that efficiently serve the needs of brokers, banks, companies and investors," he added.
Contact the author Uttara Choudhury at uttara@proactiveinvestors.com
Follow her on Twitter: @UttaraProactive