re: Pkelly's OMGA comments - I posted this to Yahoo OMGA but it hasn't yet appeared. Excuse the bad formatting and a few typos, this was off the cuff - Schmandel
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The counts given of future users seem very aggressive to me. At the present time the claim is 40K users. Claimed company/analyst estimates propose 25K new users over the next 18 months, for a running total of 65K. A few sentences later and "within next two years" ( apparently from the present date ) we have 100K users, another 35K within only 6 months of the end of the 18-month stated period required to acquire an additional 25K. Of course, no one ever stops using this software during this period of time.
The revenue sharing argument seems to suggest that the OMGA software will magically direct *all* trades counted to sites that generate a royalty to OMGA. It seems more likely that most trades will be handled by the user's broker of preference and that the revenue sharing would be a small fraction of the proposed total if based on number of trades alone.
It is also worth noting that the value of "including a button" to a given brokerage is determined by the number of trades it produces that would not have occurred without payment of the promotional fee to OMGA. In terms of total volume, how many trades will occur solely because they originate from OMGA software, and how will they compare to the total trading volume from all sources to the online brokerages? Over time, I would expect the "button" revenue to decrease, particularly as brokerages find ways to direct trades without using OMGA's software, an ultimately far more profitable pursuit to the brokerages.
The major portion of the total revenue argument are the upgrades and new user purchases, and the "button" and revenue sharing arguments rest on the user counts as well. Once again, the growth in users seems very optimistic.
Meanwhile, during the two year period in the analysis, we would assume that competition in various forms would have no impact on the potential user base *or* the price charged for the software. The latter premise is quite tenuous, you can bet that both competitive pressure and discounting will reduce the unit price charged for the OMGA software.
So, consider the scenario where no overall user growth occurs and the button/revenue sharing is much smaller, and carry something like $40M into the analysis in Part II. Apply the 30% operating margin and 40% tax rate, and suddenly we're looking at something more like $7M and a P/E that is more like the industry average cited, 28X.
If you really believe that another 25 to 60 thousand users need this high-end trading software and they will not seek less costly alternatives, than perhaps the Pkelly50 analysis is of value in assessing the price of OMGA. I personally doubt OMGA will see the growth in user base Pkelly50 proposes, analysts or no.
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