OTC Markets Group's (OTCM 0.94%) third-quarter earnings report revealed solid single-digit revenue growth that helped drive a double-digit increase in profit year over year. Growth was broad-based, as all three of its operating segments reported revenue growth in the third quarter.
OTC Markets Group's third quarter: By the numbers
The table below summarizes OTC Markets' results for the third quarter. Income before taxes was included to show the change in the company's profit on a basis that isn't affected by corporate tax cuts put in place for 2018.
|
Metric |
Q3 2018 |
Q3 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Net revenue |
$14.0 million |
$13.0 million |
8% |
|
Income before taxes |
$5.34 million |
$4.60 million |
16% |
|
Net income |
$3.49 million |
$4.39 million |
26% |
|
Diluted EPS |
$0.37 |
$0.29 |
25% |
Data source: OTC Markets, calculations by author. EPS = earnings per share.
Image source: OTC Markets Group.
What happened this quarter?
Here are some key items that drove OTC Markets' increasing revenue and profit during the third quarter:
- Trading volumes in OTCQX, OTCQB, and pink securities grew to $87 billion during the quarter, up about 61% from the year-ago period. OTC Markets cited a stronger interest in cryptocurrency and marijuana stocks as two of the drivers behind increases in trading activity year over year. Trading volume varies wildly from quarter to quarter and year to year, but over the long haul, increased volume is indicative of increasing relevance for OTC stocks.
- OTC Markets may generate revenue largely on subscription, but its OTC Link business benefits from higher trading volumes, which rise during periods of market volatility. The OTC Link segment reported that revenue increased 16% year over year to $2.8 million in the third quarter.
- Corporate services revenue and market data licensing revenue increased 8.6% and 4.7% year over year to roughly $6.2 million and $5.8 million, respectively, during the third quarter. Its highest-tier markets (OTCQX and OTCQB markets) are a part of the corporate services segment.
- Margins widened as revenue grew faster than expenses. The company reported that net revenue increased 7.7% year over year, topping the 3.5% increase in operating expenses over the same period. As a result, operating profit margin expanded to 37.7%, up from 35.2% in the year-ago period.
Looking ahead
OTC Markets has the potential to grow by positioning its markets as a way for international companies to access U.S. capital by having a ticker that trades over the counter in the United States. Already, roughly 100 Canadian companies that do not have a listing on a large U.S. exchange are using OTC Markets to help them gain relevance in U.S. capital markets.
In 2019, OTC Markets will open an international office in London, which it hopes will help the company add more large international issuers to its premier OTCQX and OTCQB markets. Management believes it's an investment worth making, as it will help OCT Markets gain more international issuers (which drives subscription fee revenue), and, in turn, give the company more data to sell through its data licensing businesses.
