ASTN Point/Counterpoint: MST2000 responds ...
I am in a private email group that has
many ASTN longs (some quavering) in it.
During a series of posts regarding ASTN,
one of the posters came up with a bearish
take on their chances. I asked my friend for
his permission to send the post to MST2000
for his take ...
What follows is the original post
which got the ball rolling, my friend's viewpoint,
MST's counter and a follow-up response
from my man ... its an interesting exchange of ideas,
and I thought you'd all be interested ...
thanks mst, ac, etc., et al.
biff
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original post:
Sub Re: ASTN rundown
In a message dated 9/8/1999 2:12:10 PM, *.* writes:
<< After the next 3-4 months CEO Fred Rittereiser is comfortable with a forecast of 5 million shares
crossing VWAP a day. This means 10 million
revenue shares (5 million bought & 5 million sold).
Let¶ïs do a little math here: assuming a
conservative 1 cent revenue for Ashton per
share traded we will get 10,000,000 * 0.01 = 100,000
(= revenue per trading day)*250 trading days
= 25,000,000 (total VWAP revenue per year).
Next assumption: Margins are at 40%
Profit for ASTN = 10,000,000
Dividing by 23.5 million shares outstanding
will bring us earnings of 0.43/per share.
Considering the current stock price of $9
we have a P/E of 21.5 here. With the $9 per
share you only buy VWAP and the rest of ATG¶ïs
business is for free !! >>
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Argument against from my email group:
These number are a little odd and frighteningly
short when you compare ASTN with other
players in the market.
Let's rerun this at a more salient
and true level.
5 million shares x . 009 revenue * 250 trading
days = 11,250,000 revenue [figure from NITE's
revenue per share traded without double
counting crosses]
Margin at 20%, not 40% (since they just launched,
assume margins are much lower. NITE is at 19% btw,
so 20% is generous)
profit for ASTN = 2,250,000 annually.
Divide by 23.6 million shares == accretive
to earnings by .095/share ANNUALLY.
Granted 11 million more in revenue is a HUGE
leap for ASTN -- for the three months ended
6/30/99, revenues rose 79% to $794k.
Having 11 million in revenue after never
having $1 million in revenue is a nice leap up.
Also, having 2 million in profit would be
a nice addition to the cash flow. But I say
this is the high end of what ASTN can do
over the next 12 months, not what is the minimum.
I'm not being critical of ASTN at all --
I think it's a nice little company with larger
potential but I really warn folks that the
enthusiasm may be running well beyond
the possibilities.
Also keep in mind that VWAP is not even PHLX-wide.
"On August 27, Ashton launched its VWAP¶©
trading system, a unique pricing and execution
system for the matching of large equity
blocks at the volume weighted average price,
on the Philadelphia Stock Exchange, Inc.
Initially, participants will be able to trade up
to 20 of the 300 listed securities approved
for VWAP¶© system trading... The remaining 280 stocks
will be phased in slowly, with all 300 stocks
expected to be up and running by the
first quarter of 2000... Fred Weingard, Ashton
chief technology officer, said in May the target
was for the system eventually to add 20 million
to 30 million shares to daily volume."
Additionally, the NYSE can put a huge kibosh
on the whole deal by prohibiting trading of
NYSE-listed securities away from the Big Board,
or from allowing only the Pacific Exchange to
do as so. That would kill PHLX for this market
entirely. There are HUGE risks here that people
seem to forget. PHLX currently only poaches
about 5 million shares a day. If PHLX increases to
20 to 30 million that Weingard is talking
about (the 20/30 million is not all ASTN handled,
just the 5 million as stated by the CEO), look for
the NYSE to start moves to squash unlisted
trading privileges.>>
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MST2000's counter-argument:
Private Messages - thread and private messages
To: biffpincus (who wrote)
From: mst2000
I respond in several ways -- first, on his math - Ritterieser is rounding down to a penny, not up.
And VTS collects on both sides of the transaction,
so you have to count revenue shares, not match
shares. Nite does not multiply by 2 because the
shares are coming in and out of Nite MM's -NITE
is effectively the counterparty in every transaction,
and they don't pay vig to themselves -- so it
is not inconsistent with each other -- it is
consistent with the facts for each -- they are
different. VTS has unrelated counterparties,
each of whom pays a fee between . 0075 and .02,
most between . 01 and . 015. So I think he is
completely off base in his basic decision to
compare it to NITE. Second, ATG has fewer employees -
it is more automated. Fred says between 40-50%
on the margin -- better is to take the gross and
apply the 600K per month burn rate, which doesn't
change much as volumes increase (a little higher).
On an operating basis, at 10MM revenue shares a
day it looks like this:
10,000,000 x .011 = 110,000 per day - 250 trading
days/yr = 27.5 Million in revenue, less say
9.0 Million Burn rate (that's $750K per month -
25% higher than it is now) = 16.5 MM per
annum profit which exceeds .50 per share.
That's my take -- use it as you see fit.
Mark
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Response to MST's counter:
I really think they are missing the forest for
the trees, and I note he only took aim at
my math, not the underlying business practices.
Sure they have the *potential* to do 27.5
million in revenue -- but there's no saying
a) it will reach that level; and
b) that the competing exchanges won't do
something to squash ASTN's ability to do this.
Right now PHLX is in trouble -- ASTN may be
its best hope, but really, they way I look at
the PHLX is that they are the last kid picked --
and sure he plays a good second base,
but can he get on base? |
