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. 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.

“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.”