The First Analyst Is In On Bats... And It's Not A Good Recommendation...

The going is likely to get tougher for BATS Global Markets, Inc. (BATS: BATS). Raymond James’ Patrick O'Shaughnessy initiated coverage of the company with an Underperform rating, citing growth as a major concern.

Bats has a track record of “being disruptive to exchange incumbents” and has the ability to execute a number of major transactions. Analyst Patrick O'Shaughnessy pointed out, however, that the company may struggle to achieve its organic growth target as well as find it challenging to take the M&A route for growth.

Organic Growth

Bats is targeting high-single digit-organic revenue growth. O'Shaughnessy commented that the company could struggle to achieve this due to low volume growth, lack of market share growth, and ongoing pricing pressure.

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“An additional 29% of Bats’ revenue comes from consolidated tape revenue, over which it has no control over pricing and revenue upside is entirely tied to market share,” the analyst mentioned.

Growth Via M&A

Although Bats has a strong M&A track record, it may find it difficult to replicate it, O'Shaughnessy stated. He elaborated saying, “Going forward, however, we believe there are relatively few M&A targets with similar characteristics [to the Direct Edge and Chi-X Europe acquisitions] and that Bats may be forced to look further afield such as it did with its 2015 acquisition of the forex ECN Hotspot.”