From the Raging Bull board:
ragingbull.com
By: ezzzmoney
Reply To: None Friday, 29 Oct 1999 at 4:09 AM EDT
Post # of 18063
Analyst EZZZMONEY raises NITE from accumulate to STRONG BUY
Institutional ownership trend
WEEK Qty SHARES % OWNED
08/21/99 144 31.3 mil 27.2%
08/28/99 145 29.9 mil 28.2%
09/03/99 144 31.3 mil 29.5%
09/10/99 158 28.2 mil 26.6%
09/17/99 162 28.3 mil 26.7%
09/24/99 164 29.1 mil 27.4%
10/01/99 169 28.9 mil 27.2%
10/08/99 169 28.9 mil 27.2%
10/15/99 173 28.8 mil 27.1%
10/22/99 177 29.4 mil 27.8%
TRADING GROWTH
Analyst Rob Sterling from Jupiter Communications reports that assets in online brokerage accounts will increase from $415 billion at the end of 1998 to $3 trillion by 2003. ?to give an idea of the scope of this growth, the entire national debt of the United States is $5 trillion?. Online trading households will grow from 4.3 million in 1998 to 20 million in 2003. This represents 40% of the U.S. households that hold stocks.
Gomez Advisors recently concluded the number of online investors is expected to grow dramatically over the next few qtrs from a current total of 5.1 mil to 8.6 mil accounts. This represents an annualized growth rate of 136%. Gomez Advisors estimates 24 mil investors with 1.5 trillion in assets by the year 2002.
Ameritrade just announced earnings. Ameritrade signed up 60,000 new accounts 0r a 12% increase in the latest qtr.
Merrill Lynch ,Morgan Stanley & American Express. Are in the process of making online trading available to millions of additional traders. While there has not been any announcements of execution agreements with NITE, It is important to note established relationships are in place. Merrill Lynch has a clearing agreement with NITE. American Express will be transferring the accounts from their Discover Brokerage subsidiary to American Express. NITE performs the executions for Discover Brokerage currently. It would make sense for NITE to continue the executions for American Express.
NITE has the trading capacity to handle the increased volume that no one else can
BROKERAGE COMPETITION
The competition among brokerage houses is heating up. The cost per trade has had increasing price pressure. Trades generally run from $7-$29. American Express recently announced no cost trades. Larger companies will start a no charge platform to gain the customer base to sell other financial services. Online brokers are expected to spend $1.5 billion on advertising fighting for new accounts. NITE benefits from their Billion + advertising. The lower cost trades and the more advertising money spent may have a negative effect on EPS for the Brokers but it has a positive effect on NITES EPS.
The increased Broker competition is a benefit to NITE. The cheaper that trades become, the more accounts will be signed up. The more accounts signed up will mean more volume & trades. I also believe that once a customer is signed up for online trading, the customer will make more trades than if they had to contact their Broker to make the trade.
SHORT INTEREST
The October 1999 short interest report shows that NITE ranked 2nd in increased short volume. Nite had an increase of 6.5 mil shares shorted. This represents an increase of 62% from the previous month.
106 mil Shares outstanding
57 mil Float (53.8% of shares outstanding)
17 mil Short (29.8% of float or 16% of shares outstanding)
The downside in the stock or profit that shorts have possible is limited at best in my opinion. A little good news, sector rotation, or momentum change has put the shorts in a dangerous position of a severe short squeeze.
ADDITIONAL SELLING PRESSURE
Waterhouse & E Trade have sold aprox 9 million shares over the last few months. These original investors made a significant profit even at the reduced levels that NITE trades at. Speculation is that the stock was sold to pay for increased advertising cost. There have not been any reasons disclosed. The additional shares needed to be absorbed into the float as well as feeding the short frenzy.
New revenue streams
EASDAQ- a new ?NASDAQ? if you will for the European market. NITE just increased its stake in EASDAQ and is the largest shareholder at 19.49%. Other USA shareholders include:
3.5% BancBoston Robertson Stevens
2.3% Morgan Stanley Dean Witter
2.3% E Trade Group
1.2% Herzog Heine Geduld
1.1% Goldman Sachs
1.1% Susquehanna Partners
OPTIONS MARKET
NITE announced in their 3rd qtr conference call that they are moving forward with their plans on entering the options market. Ken Pasternak, NITE?s CEO & President stated an acquisition of an options maker would be announced before the end of the 4th qtr.
AFTER HOURS TRADING & ECN?s
There has been a lot of confusion & different views on the effects that ECN?s will have on NITE?s business model. The fear is that ECN?s may eliminate or greatly delete the need for market makers. This issue was dealt head on during the recent conference call. Mr. Pasternak explained that the ECN?s would not be a threat to NITE, rather it will help NITE. The ECN?s can only handle limit orders, matching a buyer & a seller. ECN?s do not accept market orders or provide any liquidity. NITE is positioned to execute limit orders faster & cheaper than the ECN?s. NITE also owns a stake in BRUT ECN, which just announced a letter of intent to merge with Strike.
MARKET SHARE
Market share dropped slightly in the 3rd qtr from the 2nd qtr. This could have been caused by the overall market slowdown (volume) in the 3rd qtr. October is showing an improvement to aprox 16%, up from about 14.5% in September.
DELISTING OF OTCBB STOCKS
NITE receives higher margins from OTC stocks. Since the OTC has/is delisting stocks, there is concern the effect this will have on NITE. I believe this effect to have very little if any material impact and may end up having a positive impact. I would be surprised if the volume of the stocks being delisted represent much volume. There is good reason for the stocks being delisted in the 1st place. The quality of the stocks that remain may pick up additional volume & interest.
VOLUME & VOLATILITY
Both have increased in Oct. With the addition of new accounts being signed up online the volume should continue to increase. It use to be rare for a billion-share day. The NASDAQ is trading an avg. of 1 billion shares a day in OCT. If online accounts grow from 5 million to 20+ million accounts over the next few years, what will these numbers grow to?
ANALYST FORCAST
It is difficult to forecast volume & volatility. Both of these factors have a material impact on EPS. After the 3rd qtr shortfall, Analyst will be very conservative on estimates. This positions NITE to beat forecast. NITE will hopefully find a better way to guide Analyst in the future.
USE OF ITS (Intermarket Trading System)
SEC Chairman Levitt noted on Oct 27, 1999
The commission will vote next month on a proposal to open up ITS to NASD firms such as NITE. Nite must now go through higher cost regional stock markets to trade blue chip stocks. Mr. Levitt appears to be very much for this change.
CLEARING DEAL WITH MERRILL
Merrill started clearing NITE?s trades in mid Oct. The cost savings are estimated at .04 per share.
FINANCIAL INFORMATION
Although revenue & EPS is significantly ahead of last year & qtr to qtr, the 3rd qtr showed a sequential decline. Reduced estimates of .31 were missed badly at .19. The conference call was mostly positive with earning estimates projected to grow in excess of 30% by management. Volume & Volatility were the primary causes of shortfall. Mid point pricing at the open also had some effect. Management feels that the mid point pricing program is a big enough benefit to their customers, that they will gain market share with by having it.
Revenue History Quarters 1,2,3
1996 $132,070,000
1997 $159,643,000 + 21%
1998 $236,493,000 + 48%
1999 $536,146,000 +127%
Earnings per share
1996 .18
1997 .22 + 22%
1998 .36 + 64%
1999 .96 +167%
Consensus estimates
FY Dec 99 $1.30 PE 19
FY Dec 00 $1.57 PE 16
Based on stock price $24.625
CONCLUSION
NITE will have its hands in all types of trading worldwide. Shorts will have to cover eventually and they are taking undue risk at these levels. There is a lot of cash on the sidelines waiting for Jan.
Longs will have to be patient on the way up. Traders will sell as the stock rises to their break even levels for them. A lot of shares have been purchased at lower levels.
NITE will continue to grow at sensational rates. There are a lot of positive things going for NITE. The risk/reward analysis appears very strong.
(Voluntary Disclosure: Position- Long; ST Rating- Strong Buy; LT Rating- Strong Buy)
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