Monday, February 1, 1999

Track Data Corp.
(Nasdaq: TRAC)
Phone: 212-422-4300
Website: http://www.tdc.com
Price (1/29/99): $7 1/4


As a provider of online financial information, Track Data (Nasdaq: TRAC) has tracked the Internet euphoria pretty well. Its latest surge follows news the company will soon enter the online brokerage business. But its shares have also benefited from the broader excitement over Web-based financial news offerings created by the recent IPO of CBS Marketwatch.com (Nasdaq: MKTW).

Last April Track Data soared from $1 1/2 to $10 per share after the company introduced myTrack (www.mytrack.com), an Internet-based market quotation and news system that provides streaming updates and access to other trading tools, such as a trade-by-trade log, charting features, and chat rooms. For an extra charge, traders can access real-time quotes and even Nasdaq Level II screens. By year-end, 35,000 customers had registered for the product.

Still, the stock was pushed seriously off-track by the late-summer market mayhem, which left speculative names looking like they had been in a train wreck. In early October, the shares skidded to as low as 56 cents, down 94% from the April high.

The stock then recovered, along with other Internet-related issues. The latest rally really began December 30, when the stock doubled to $7 11/16 on word the company would provide myTrack users with online trading services. Traders bid the shares up to a new high of $11 1/8 on January 12, the same day Data Broadcasting (Nasdaq: DBCC), a major holder of Marketwatch.com, saw its shares fly to an all-time high of $46 per share, up 800% in just three months.


Track Data offers real-time financial market data, fundamental research, charting, and analytical services to institutional and individual investors through dedicated telecommunication lines and the Internet. It also provides real-time news and third-party database information from more than 100 sources. The company has been delivering financial information electronically since 1981.

Its main products include MarkeTrack, MarkeTrack98, Track OnLine, Dial/Data, NewsWatch, NewsWeb, myTrack, and ProTrack. Its AIQ Systems division offers artificial intelligence software for picking stocks and timing the market.

Competitors include Bloomberg, Bridge Information, Thomson Financial Services, Reuters' (Nasdaq: RTRSY) Quotron, Dow Jones (NYSE: DJ), Telescan (Nasdaq: TSCN), Data Broadcasting (Nasdaq: DBCC), and NewsEdge (Nasdaq: NEWZ).

Insiders own 82% of the stock, with virtually all of that held by Chairman & CEO Barry Hertz. Track Data also owns 14% of Innodata (NYSE: INOD), a firm run by Hertz.


Income Statement
12-month sales: $46.9 million
12-month income: $0.85 million
12-month EPS: $0.06
Profit Margin: 1.8%
Market Cap: $105.9 million

Balance Sheet
Cash: $0.6 million
Total Assets: $17.6 million
Total Liabilities: $9.6 million

Price-to-earnings: 120.8
Price-to-sales: 2.3


The cynical trader of Internet stocks would find much to like about Track Data. First, it has both substantial revenues from existing businesses and actual profits (albeit tiny). Second, its Internet offering is being repeatedly enhanced, providing many opportunities for upbeat press releases. Third, it has a small float of just 2.5 million shares, perfect for sending the shares flying on news (trading on December 30 was 4 times the float).

Finding this Double, then, would have involved tracking stocks that had already proved attractive as speculative Internet plays, and just buying on the dip. Of course, Fools would prefer to look at business fundamentals.

And that's tricky. The company's filings indicate that the financial information disseminated by its various services is purchased from third-party sources. Only its economic and historical financial databases and its trading software are proprietary.

While Track Data made $0.03 per share in FY97 (about $0.11 per share before losses at Innodata), that was the firm's first profitable year in the previous five. Moreover, revenues grew just 5.3% per year between FY94 and FY97.

More recently, the razor-thin profits have turned to small losses as the company adds customer support personnel and boosts advertising expenses to promote myTrack and ProTrack. And revenues have actually been declining for the past two years.


The numbers alone suggest that Track Data operates in a competitive market, where it delivers mostly its own version of a commodity product available from many other vendors. While the company hopes to make its mark with its Internet offerings, the competitive logic of the Internet seems most visible in the area of online financial information, where what costs money one day is free the next.

On a fundamental basis, then, Track Data looks overvalued. Still, the company is likely to remain a perennial trading vehicle, and the next run-up will no doubt come when the company starts issuing more press releases regarding its online brokerage services.

In mid-February, the company is expected to roll out its newest myTrack software, which will allow users to open brokerage accounts with its new Track Securities unit. In March, the company will slowly start enabling accounts for trading. The plan is to ramp slowly to ensure quality of service. By the end of April, the company should have the initial kinks worked out and begin more aggressive promotions.

Track has no plans to compete on price: Trades are expected to cost $13 to $17. The company clearly hopes its expertise in dealing with financial data and trading tools can produce a rich online trading experience that will differentiate it from other discount brokers. The online trading system will work best for myTrack customers, but it will also be open to others. And it will need to be, since 35,000 myTrack customers do not a brokerage business make.

Of course, the online brokerage industry is also fiercely competitive and replete with headaches associated with handling massive trading volume. Track Data may have an edge on the ancillary information offerings, but it's a newbie facing problems that E*Trade (Nasdaq: EGRP) and others have been addressing for years now.

While Track's vertical expansion is interesting and will probably generate new bursts of investor enthusiasm down the road, from a fundamental angle it's not clear that the company has found a profitable long-term business model.

-- Louis Corrigan

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