As you may have noticed, NDB (National Discount Brokers) announced today that net income will "be in the range of $.02 per share to a loss of $.01 a share compared to analysts' estimates of $.21 to $.22 a share" for their Q1 just ended a/o Aug 31. Should this affect NITE?
As justification for NDB's shortfall, the press release cites:
biz.yahoo.com
"The Company's expenses are expected to be approximately 9% greater than the analysts' estimates of approximately $48 million due to the acceleration of expenses associated with NDB.com's advertising campaign, non-recurring write-offs of obsolete equipment and software to allow for upgrades at its subsidiaries, Sherwood Securities and NDB.com, and clearing and related charges from increased transaction flow at Sherwood Securities."
Several comments:
1. NDB announced before and after their last Qtr's earnings report that there would be a substantial increase in advertising expenses going forward. I would think the markets should have been forewarned - they've been priming the street for this for quite some time. Although the magnitude of the shortfall may come as a surprise.
2. I happen to have an account at NDB and was one of the beta-testers for their new OLB web-site earlier this year. Consequently I have followed (and traded very profitably - a 3-bagger) NDB for quite some time.
NDB's forthcoming net income shortfall appears to be company-specific, but will probably drag down the OLB sector tomorrow. Will NITE be affected adversely? Shouldn't be affected, but we'll see...
I am also willing to suspect that their Market Making entity, Sherwood Securities (which, by the way, yields the lion's share of their revenues), is not as efficient and competitive as NITE is. I know from recent discussions with brokers at NDB that a fair amount of NDB trades are actually routed to NITE in spite of the fact that they have their own in-house MM (Sherwood). What does that tell us? Maybe because NITE makes a market for 7,000 securities, Sherwood routes only the trades it doesn't make a market for to NITE. Or, NITE may simply provide better liquidity in Sherwood-covered issues and some block trades that Sherwood cannot handle get routed to NITE.
3. What is this about: "...non-recurring write-offs of obsolete equipment and software to allow for upgrades at its subsidiaries, Sherwood Securities and NDB.com" --- Perhaps they're having to modernize their Sherwood market-making operations to compete with the likes of NITE.
4. "and clearing and related charges from increased transaction flow at Sherwood Securities."
--- Wouldn't you think "increased transaction flow" for their in-house market maker would be a NET POSITIVE?? Specifically, wouldn't increased "clearing & related charges" be proportionally offset by increased revenues from their market-making activities? Or are things becoming less efficient for their market-making entity?
Sherwood's Nasdaq market share is around 2%, so they're a minor player. My experience with NDB has been that they really missed a golden oppty with their OLB web site. They were one of the first-to-market with a real-live trading web site and they stuck with a clunky first-implementation version of their site for too long while Datek, SCH , EGRP passed them up.
Perhaps in the new year, if NDB's OLB activities surpass their Sherwood market-making activities as they have projected, then NDB will consider selling off Sherwood to someone like NITE. Earlier this year, NDB sold off its NYSE Specialist firm, so selling Sherwood is not out of the question.
Buying Sherwood would help NITE in its path to controlling position in the Nasdaq. |
