OTC Markets Group - Q122 – net income up 11%, but costs start to bite

OTC Markets Group’s (OTCM’s) Q122 net income was up 11% y-o-y despite weaker financial markets trading volume and prices. Corporate services (+51% y-o-y) and market data licensing (+9% y-o-y) revenue was as resilient as expected and compensated for the 47% decline in OTC Link revenue. However, operating expenses rose by 12% due to rising staff compensation and IT. OTCM purchased Blue Sky Data for $12m cash in May 2022, allowing OTCM to improve its value proposition and expand its subscriber base. We maintain our assumption that markets will remain choppy due to concerns about inflation and rising interest rates. We have cut our EPS forecasts for FY22 and FY23 by 19% and 17% respectively to reflect higher operating expense assumptions. We have cut our dividend forecasts by 20% but note that this could be conservative given OTCM’s strong balance sheet and cash flow generation.