This is the estimation of Newtopos of the TMF Nite thread...
An excellent begining point...all input is most appreciated...*smile*..
Regards to all...have an excellent evening (BTW, I believe that YHOO earnings have pretty much cleared the way for us all...*smile*)
boards.fool.com
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Why NITE Will Blow Away Earnings
(or, How to Profit in This Market by Buying an Undervalued Gorilla Growing at
a Staggering Rate)
Last quarter, something amazing happened with NITE. Earnings estimates were
around .39, the whisper number got as high as .50, and then NITE delivered
.67. This brought NITE into the spotlight as a true gorilla (the largest Nasdaq
market-maker continuing to capture market share) benefiting from the growth in
online trading, the proprietary technology and methodology that led NITE to the
number #1 spot, and the extremely efficient model that keeps fixed costs low
and offers unbelievable incremental profits.
Now it is time for the second quarter, and the availability of market trading data
allows us to look what might lie ahead for NITE.
Other posts have talked about the raw Q2 data, and even compared Q2 data to
Q1 data. From this, guesses have been made. But no one has gone back to look
at what happened from Q4 of '98 to Q1 of '99 that allowed NITE to go from
.17 a share (split-adjusted) to .34. Where did that 100% sequential earnings
growth come from?
Here is the answer.
There are two main sources of readily available trading data that I know and
understand. The first is www.nasdaq-trader.com, and the second is
www.otcbb.com.
Here are the volume numbers for Nasdaq (in millions):
Oct. 1472
Nov. 1734
Dec. 1902
Jan. 2011
Feb. 1666
Mar. 2024
Apr. 2421
May 1882
June Not Available Yet
By quarter, we get:
Q4 (98): 5108
Q1 (99): 5701
Q2 (99): 6103*
*estimate, using 1800 as the estimate for June
Here are the volume numbers for OTC-BB stocks (also in millions, with all
months accounted for):
Oct. 420
Nov. 549
Dec. 793
Jan. 1065
Feb. 1401
Mar. 1255
Apr. 2375
May 2359
June 1990
By quarter, we get:
Q4 (98): 1762
Q1 (99): 3721
Q2 (99): 6724
So, let's first look at what happened from Q4 (98) to Q1 (99) that allowed
NITE's earnings to go from .17 a share to .34 a share (split-adjusted).
Nasdaq volume went from 5108 million to 5701 million, for an increase of 593
million, or 11.6%.
OTC BB volume skyrocketed from 1762 million to 3721, for an increase of
1959 million, or 111%.
Now, consider that NITE mentioned in its annual report that improved margins
were due to the growth in "...OTC securities transactions, which have lower
execution costs than transactions in listed securities."
Q1 saw an explosion in OTC trading. I suggest that this probably accounts for
much of the 100% sequential rise in earnings, or in other words, the addition of
.17 in earnings from Q4 to Q1.
Now let's look at Q2 vs. Q1.
Nasdaq volume isn't complete yet, because we don't have June data. I took
some other data to come up with an estimate of 1800 million for June, which
translates to a 5% drop in volume from May. Once we have June's data, we can
revisit this.
Nasdaq volume with that estimate was 6103 million for Q2 vs. 5701 million for
Q1, for an increase of 402 million, or 7%.
OTC BB volume again skyrocketed, moving from 3721 million to 6724 million,
for an increase of 3003 million, or 80.7%.
What does this mean?
A .17 earnings gain in Q1 was due to 593 million more Nasdaq shares being
traded and 1959 million more OTC BB shares being traded.
Q2 will show roughly 402 million more Nasdaq shares being traded and 3003
million more OTC BB shares being traded.
Working from NITE's claim that OTC trades are more profitable, it's
conceivable to NITE could add at least another .17 in earnings. That would
bring us to .51 a share, versus estimate of .34 and a whisper of .37.
Considering the huge OTC gain and adding the fact that NITE has said that their
trading advantage (or knowledge advantage) increases as volumes increases,
and we could see even larger gains.
Further more, NITE has continued to grab market share, moving from 15% in
Q1 to 18-19% in Q2.
What does this mean?
NITE could conceivably blow away the estimates again. Of course, there's no
guarantee of that. June might have been worse than I calculated, third-market
trading might have slowed, the correction in May and June might have lessened
the unbelievable profits NITE enjoyed in Q1. Don't get me wrong, any number
over the whisper will be welcomed. And considering that NITE is trading a such
a ridiculously low multiple (by comparison, AMTD earned roughly 5 cents per
share post-split last quarter vs. 34 cents for NITE, yet AMTD trades around 42
and NITE around 60), NITE could easily run simply based on the stated
earnings estimate.
But I'm making a case that NITE could do something spectacular again.
Something that puts the current PE at 30, for a company that's growing 100+%
a year, with incredible ROE, profit margins, etc.
And the long-term picture for NITE couldn't look better. European trading,
options trading, afterhours trading, institutional trading. All markets that NITE is
attacking.
This, folks, is just the beginning.
Eric
NITE 120
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