Please ensure Javascript is enabled for purposes of website accessibility

OTC Markets Group's Third-Quarter Profit Surges 26%

By Jordan Wathen – Updated Nov 8, 2018 at 12:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Revenue growth, lower taxes, and expanding margins helped drive a 26% increase in net income.

OTC Markets Group's (OTCM 0.18%) 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.

OTC Markets logo

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.

Jordan Wathen has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends OTC Markets Group. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

OTC Markets Group Stock Quote
OTC Markets Group
OTCM
$55.15 (0.18%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.