Greetings from Omaha, Nebraska!

Me (Kyle Grieve), Shawn, and Daniel just wrapped up another wonderful weekend, celebrating Warren Buffett’s and Charlie Munger’s legacies at this year’s Berkshire Hathaway shareholder meeting, as Greg Abel ushers in a new era of stewardship. If you missed Greg’s inaugural letter to shareholders, I’d encourage you to check it out.

And to everyone who attended our Intrinsic Value Conference in Omaha, thank you! Shawn and Daniel crushed it!

Now that I’ll be joining Shawn and Daniel in writing these weekly company-breakdown newsletters, I’d like to make my first pitch something special, a company I’ve wanted to own for years but never pulled the trigger on.

That company is OTC Markets Group, a business you’ve almost certainly come in contact with if you’ve traded over-the-counter securities (OTC) in the U.S. What impresses me most about the business is its coverage of over 12,000 securities, more than both major stock exchanges combined, yet the entire operation runs on fewer than 130 people!

Believe it or not, there’s a vast universe of equities that trade publicly, but are mostly overlooked for being unable to meet the listing requirements of the New York Stock Exchange and Nasdaq, such as being able to provide audited financials in line with Generally Accepted Accounting Principles (GAAP).

Small & micro-cap in nature, these businesses are often penny stocks or foreign companies seeking U.S. capital. OTC Markets Group enjoys the privileged position of collecting a toll on nearly all of that activity, catering to thousands of companies left by the wayside by major stock exchanges.

Incredibly, for over a decade, this business has compounded free cash flow at 14% annually while barely touching debt. It maintains operating margins higher than Alphabet. And despite all this, it trades at roughly 15x operating profits, a substantial discount to NYSE’s parent company at 23x.

Let’s discuss!

— Kyle

OTC Markets Group (OTCM) is vital to US markets. But it’s also a business that is difficult to understand. It has a lot of moving parts, but each is very important to US markets, even though you’ll probably be unfamiliar with many OTC tickers.

OTCM specializes in the Over-The-Counter (OTC) market. This is where you’ll see a lot of international businesses that don’t have a NYSE or NASDAQ ticker. For instance, in our Intrinsic Value Portfolio, businesses like Universal Music Group, ticker UMGNF, and Exor, ticker EXXRF, both trade on the OTC markets. For many companies, OTC markets offer the only way to reach public investors.

While OTCM is technically a small-cap company with a market cap of $640m, it operates on a larger scale than you might think. There are over 10,000 companies that trade OTC in the US, more than on the NYSE and Nasdaq combined!

So let’s get a little more granular about what OTCM specifically does. They do things like match buyers and sellers, report trades to regulators, publish quotes, handle corporate disclosures, manage compliance, and ensure that everything stays legal.

Even as a smaller-cap business, it has quite a long history. It dates back to 1913, under the National Quotation Bureau. The business went through a number of changes over the years, known as Pink Sheets and a few other names, before finally settling on OTC Markets in 2008.

The turning point for OTCM, as we know it today, happened in 1997, when current CEO, Cromwell Coulson, bought the business with a group of other investors, and brought it into the digital age. He’s been CEO ever since.

As for OTCM's business, the financials are intriguing. Over the last decade, they have accomplished the following: 

These numbers tell me something important. If you can compound numbers at these rates for over a decade, through the peaks and troughs of the market, including things like the Great Financial Crisis, Covid, and the follow-up interest rate hikes, you’re looking at a business that screams resilience. Add to it that they accomplished this without the use of excess leverage, while keeping the share count stable, and that makes the growth and margin improvement even more impressive.

So how exactly does OTCM generate revenues? They have three primary drivers of value that I think will grow at different rates, depending on factors such as customer dynamics and product offerings. To understand the entirety of OTCM, you need to understand these three segments.

OTC Link: The Trading Infrastructure (21% revenue share)

This is the smallest segment of OTC’s revenue, but it’s critical to the non-registered listings in the US. Whenever someone buys a stock on the OTC, OTC Link handles the transaction behind the scenes. It’s routing quotes, communicating with market makers, processing trades, and reporting them to regulators like the Financial Industry Regulatory Authority (FINRA). The company collects tolls on all this via subscription fees from broker-dealers, per-user fees for access to its trading application, and transaction-based fees for each quote published and each message sent through the system.

This is the most cyclical segment of OTCM for a simple reason. When markets are euphoric, you tend to get volume surges, which means more shares are being bought and sold, spiking OTC Link’s revenue.

If we look at 2021, retail investors flooded the market with free money circulating through stimulus payments. During this time, OTC Link’s electronic communication network (ECN) transactions exploded from 11,500 per day to 48,000 per day. Revenue that year grew 87%. But when markets contract, trading dries up and revenue compresses. The beauty about OTCM is that even in down markets, the subscription base ensures a baseline of revenue and profitability, so even in down cycles, you’re still making profits.

One important note here. Broker-dealers must use this infrastructure to facilitate OTC transactions. There really isn’t much of an alternative, which means that OTCM has some very real switching costs for its customers. If they wanted to move to a different exchange, they would need to recertify with regulators and rebuild complex compliance processes, creating a powerful embedded stickiness to the business.

Corporate Services: Listing Fees (39% revenue share)

OTC Link is more involved with transactions via its Corporate Services segment, which serves the publicly traded companies on the OTC Markets. The problem in public markets is that now all companies can or want to meet the requirements of listing on the NYSE or Nasdaq. It costs money, time, and energy to do this, and for many businesses, it’s simply not worth the hassle since OTC Market exists. For issuers, they pay a flat annual fee to list on one of OTCM’s tiers. 

Larger businesses tend to gravitate toward the OTCQX to maximize transparency with the market, whereas smaller businesses may look at the OTCQB. If you want to go even further away from detailed disclosure, you can go to the Pink Limited Market. These three listing options correspond to the degree of auditing and disclosure a company is willing to undergo, and therefore, each carries a varying degree of perceived legitimacy among investors.

The brilliant structural advantage of this segment is that the fees are flat and not based on market cap, trading volume, or share price. That means OTC Markets gets paid regardless of market conditions. A company with a stock price in free fall still pays the same listing fee as one zooming up in price. A company with zero trading volume still pays like one with massive daily volume. This creates predictability and removes downside sensitivity during bear markets

Retention is extraordinarily high. OTCQX renews at 95% annually. OTCQB at 90%. This means the customer base is sticky. Once companies are on OTC Markets, they stay because exiting means losing all market visibility, investor relations infrastructure, and their good standing in the OTC ecosystem. There's also a reputational element: leaving reflects poorly on you.

The other great thing about OTCM is just how much they’ve flexed their pricing power. OTCQX has substantially increased its fees over the years. In 2017, OTCQX fees were about $15k; today, they’re around $26k. That’s a 73% increase in eight years, while retaining over 90% of their customers. Going forward, I expect them to continue increasing prices annually by about 3%-5%.

This business reminds me a lot of Verisign, a business Shawn pitched previously in this newsletter. Verisign has a monopolistic position on domain names, such that if you own a website that ends with .com, you must send Verisign a small payment annually for the right to use it.

Verisign relies a lot on price increases to drive growth. But this has drawn the interest of regulators, who do not want to see businesses abuse monopolistic powers. Luckily, OTCM doesn’t push pricing power anywhere nearly as aggressively, keeping churn low and keeping them out of regulators' crosshairs.

Market Data Licensing: The Data Business (40% revenue share)

This is OTCM’s segment where I feel things get especially interesting and where the business’s durability becomes apparent. Increasingly, OTC Markets is a vital data source for the financial ecosystem. Broker-dealers need real-time quotes on OTC stocks to price them correctly. Bloomberg needs OTC data to include on the terminals that it sells to its customers. Compliance officers need data to screen for suspicious activity. Retail investors and professional investors want order book data to see who's buying what and in what volumes. And the list goes on…

What’s wonderful about all of this demand is that OTCM can sell its data licenses on a recurring basis. Either directly to their customers, or indirectly through distributors like Bloomberg and Refinitiv. Professional users have grown by over 35% over the last 10 years!

And the business line has been further strengthened by two recent acquisitions: EDGAR Online and Blue Sky Data. (EDGAR hasn’t been as much of a value-add as hoped, but Blue Sky has been quite accretive).

Like OTC Link, this segment exhibits some volatility. Retail inventors tend to be quite cyclical. During bull markets, there tends to be a surge in retail subscribers who want access to their data. But they tend to be short-lived. As bear markets develop, these subscribers are not loyal and tend to leave the platform. As I see it, there isn’t much OTCM can do about this, as it’s inherent in the business model.

OTCM has multiple competitive advantages that make this business quite durable despite its small size, beginning with its regulatory moat, which I’d argue is the company’s biggest advantage. It’s imperative to recognize that the NYSE and Nasdaq are legally barred from listing non-SEC-registered foreign companies.

In other words, OTCM’s regulatory moat protects its revenue streams from powerful competitors. The major exchanges are allowed to list only fully registered, compliant companies. For any company that doesn't meet SEC registration requirements, OTC Markets isn't just one of many options. It's often the only realistic option in the United States.

This creates an unusual dynamic. OCTM doesn’t primarily compete on product quality, brand, or even price. Instead, it exists because regulations have essentially eliminated competition. For small companies and foreign entities, OTC Markets is the default choice, not one they've evaluated against alternatives.

But this is a double-edged sword. If the SEC were to change its mind and allow the Nasdaq or NYSE to list non-registed companies, or create a separate “venture exchange” framework, OTCM's fundamental advantage evaporates into thin air. I see this as a low probability event, but it’s still possible, and if it were to happen, it would greatly impair OTC's three segments.

The company also benefits from network effects driven by data as a secondary advantage that are more subtle but important nevertheless. As OTC Markets gathers proprietary data on 12,000+ securities, that dataset becomes increasingly valuable to customers, creating a type of flywheel. More data attracts more users. More users generate more data. More data attracts more broker-dealers and platforms. And more broker-dealers attract more issuers seeking visibility.

It’s worth mentioning that OTCM benefits from switching costs, too. Customers’ trading workflows are built into OTC Link's infrastructure, and switching to a competitor requires re-certification with the SEC and FINRA, rebuilding internal systems, and retraining staff.

For corporate issuers, switching costs operate at both the psychological and operational levels. Leaving OTC Markets means losing market visibility, rebuilding investor relations infrastructure, and losing the reputational standing they've built as a publicly traded company. It also signals uncertainty!

Last but not least, I should emphasize that OTC Markets' integration with FINRA and the SEC is a crucial resource. The company has spent decades building these relationships, creating systems that work within regulatory frameworks, and establishing itself as an essential part of secondary market infrastructure. A potential competitor can’t easily replicate this. The regulatory relationships themselves are a barrier to entry that money alone can't buy.

The interesting thing about OTC Markets isn't just that it's profitable, but how much operating leverage has improved over the years. Remember these two CAGRs?

That three-percentage-point gap is due to operating leverage — an idea critical to understanding why this business is compounding intrinsic value faster than its top-line growth alone would suggest.

Here's how you see it in practice:

Importantly, headcount hasn't exploded despite revenue doubling. The company grew its revenue from $68M in 2020 to $125M in 2025, while adding just 28 employees (from 102 to 130). Revenue per employee increased from $666k to $961k, meaning the business doesn't require a proportional increase in headcount to generate more revenue.

Another thing to note is that margins are making higher lows. Yes, Operating margins will continue to fluctuate with the business cycle; they spike during bull markets and compress during bear markets. But the important pattern to watch is that the base isn’t going down. Even in difficult years, margins stay elevated. OPEX is 63% of expenses and grows slowly relative to revenue. During bullish periods, incremental revenue flows largely to the pretax income because the cost structure is so fixed.

Another great part of OTCM is that it is capital-light. Annual capital expenditures are under $1.5M. Depreciation and amortization run just $2.6M. There are no factories, warehouses, or significant physical infrastructure. The company runs on people, software, and data infrastructure. Only software businesses can generate revenue like this with little maintenance capex.

Variable costs are manageable, too, comprising roughly 20% of expenses. These include liquidity rebates paid to market makers (when trading activity is high), redistribution fees to platforms like Bloomberg, and incremental cloud costs. Notably, when these variable costs spike, it generally indicates higher trading volume and market activity, which can improve profitability.

Digging deeper into the company here, we ought to better appreciate the business’s unit economics. While OTC Markets doesn't disclose individual unit economics in its filings, you can infer them from public data, and they're quite exceptional.

In 2025, they added 430 new corporate services subscribers and spent $1.6M on total marketing and advertising across the company. Even if you assume 100% of that spending went to corporate services, an overly generous assumption, that's roughly $3,700 per customer acquired. In reality, it's probably lower since they also peddle data services and OTC Link.

A corporate services customer has a 5-7% annual churn rate, implying an average tenure of 14-20 years. At $26k in annual fees plus 3-5% annual price increases, you're looking at a lifetime value of $350k-$500k per customer.

So, they're spending less than $3,700 to acquire customers worth $500k! A return on acquisition spending is somewhere in the range of 100x-150x.

The problem is that they can’t make this investment whenever they want. There are only so many companies that can go public. Unfortunately, OTC Markets can't spend 10x more on marketing and acquire multiples more issuers, because the number of companies seeking public listings is constrained by macroeconomic and market conditions, not by marketing spend. If markets are bad and IPO activity collapses, no amount of sales effort will change that.

Now, OTC Markets can still grow earnings consistently through three channels:

1. Organic expansion of the customer base
New issuers list on their platform, new broker-dealers subscribe to OTC Link, and new professional data subscribers sign up. This happens naturally as markets grow and more companies seek capital.

2. Margin expansion from pricing power
The company has consistently raised fees year after year without any material acceleration in churn. During up cycles, you might see OTCQX fees scale up substantially in a single year. This is the primary lever for earnings growth beyond volume growth. The company has demonstrated pricing power through its competitive advantages.

3. Cyclical tailwinds from market euphoria
In 2021, for example, OTC Link revenue exploded 87% as retail investors flooded the market. Market data licensing for non-professional users surged 36%. New issuers came public at a headspinning pace. But these were temporary tailwinds.

The realistic long-term earnings growth rate, averaging across cycles, is approximately 12% annually. This assumes: High single-digit organic growth from new listings and subscriptions (maybe 8%-9%), margin expansion from continued pricing power (another 2-3% in earnings growth as margins gradually improve toward 29%), and periodic cyclical tailwinds that pull earnings up temporarily, followed by compression

At today's price of approximately $54 per share, OTC Markets trades at roughly 21x trailing earnings — a reasonable starting point for valuation analysis, where I utilize the following assumptions:

Assuming the above, then the implied per-share value is ~$113.

Between price appreciation and compounding, your expected total annual return over 5 years would be approximately 20%.

Now, the exit multiple of 25x might seem high in isolation, but in reality, it’s more than fair for a company of such quality.

Like all businesses, OTC Markets has risks. Namely, there’s the possibility of black-swan regulatory risk. The SEC could theoretically allow Nasdaq or NYSE to list non-SEC-registered companies, or create a separate "venture exchange" framework similar to the TSX Venture in Canada. If this happened, it would impair all three revenue segments.

Additionally, there’s reason for concern over customer concentration, since the top customer represents 9% of revenue in the MDL segment. One retail-focused broker-dealer changed its internal policy in 2025, and the non-professional user base dropped 18% that year. So this segment can be volatile.

There has also been OTC Link subscriber decline, with the number of broker-dealer subscribers on OTC Link falling from 116 to 77 over the past decade. This is partly due to industry consolidation and partly due to competitive pressure. So far, professional users in market data licensing have continued growing, so the decline hasn't been a major problem. But if this trend continues, it could indicate structural weakness in the OTC Link segment.

And then, there’s the reality that retail interest in market data spikes during bull markets and evaporates during bear markets. You can't really smooth this problem out. You can only patiently wait for mean reversion. Instead, the company needs to keep professional users growing to offset the embedded cyclicality.

Before we make a portfolio decision for OTCM, let’s quickly touch on management. Cromwell Coulson has been CEO for 29 years. In conventional wisdom, that's either a red flag (stale thinking, entrenched management) or a strength (proven ability to navigate multiple cycles, institutional knowledge). In this case, the evidence clearly points to the latter.

As we’ve discussed, under his tenure, shareholder returns have been excellent.

When discussing management, I like to use Buffett’s Rule Number One to help me understand capital allocation. Which is to say, when a business retains earnings, I want to know, like Buffett, that that money is being used to create value. In OTCM’s case, over the past decade, they have increased in market cap value by $342M plus $129M in dividends, from just $18.2M of retained earnings

These are eye-popping numbers. I generally divide the increase in value by retained earnings, and you want to see more than $1 created for each $1 retained. In OTCM’s case, that’s over $26 dollars!

Compensation is very reasonable as well, with Cromwell making roughly $800k in total compensation annually. Compare that to Nasdaq’s CEO, who was paid $21.5M last year, and Intercontinental Exchange’s CEO, who was paid $19.8M.

On top of modest pay, management bonuses are tied to two KPIs: EPS and revenue growth. The EPS component, in particular, is great because it prevents management from spending recklessly on growth just to hit revenue targets, even though such spending could destroy shareholder value.

OTC Markets Group is a good business that does exactly what it's supposed to do to improve shareholder value. It generates growing profits, requires minimal capital, operates in a space where switching costs and regulatory barriers prevent competitive displacement, and has proven capable of raising prices without material churn. What more could you ask for?

The valuation, at 21x profits with a potential IRR of 20% annually, including dividends, offers a margin of safety relative to the S&P 500's current valuation.

My main concern is regulatory, not operational. If the rules change dramatically, the business changes. Still, Shawn and I agreed to add OTCM to the portfolio as a 2% tracking position as we seek to better wrap our heads around the risks facing this excellent business. If we come to better appreciate these regulatory risks, we may rethink the position entirely, which is a luxury we can spare when dealing with smaller bets, like tracking positions.

More portfolio updates and resources below!

"Raising prices is a great way to flesh out whether you actually do have a moat. If you do have a moat, the customers will still buy, because they have to. The definition of a moat is the ability to charge more."

— Marc Andreessen

📺 WATCH: Watch back the full morning session from this weekend’s Berkshire Hathaway shareholder meeting

🎧 LISTEN: Kyle breaks down the cross-border payments company Wise with Daniel Mahncke

📖 READ: The Last Moat by Ian Cassel and learn how investors can still have an edge in an AI-centric market

You can also read our archive of past Intrinsic Value breakdowns, in case you’ve missed any, here — we’ve covered companies ranging from Alphabet to FICO, Transdigm, Lululemon, PayPal, DoorDash, Crocs, LVMH, Uber, and more!

Enjoy reading this newsletter? Forward it to a friend.

Was this newsletter forwarded to you? Sign up here.

Apply to join our Intrinsic Value Community of investors

Learn how to join us in Omaha for the 2026 Berkshire Hathaway shareholder meeting!

Read our full archive of Intrinsic Value Breakdowns here

Keep an eye on your inbox for our newsletters on Sundays. If you have any feedback for us, simply respond to this email or message [email protected].