Diversified revenue strengthens earnings for Voyager Digital

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Earlier this week, Voyager Digital, a US-based crypto platform, released its full December 2021 quarter revenue of $164.8M. This is in line with the pre-released $165M estimate released on January 5th and up from $3.6M in Dec. 2020 quarter. The stock is currently trading at C$10.35.

The stock has slid down into the C$11 range, and it seems investors are now treating Voyager as a trading-driven stock. Given the company’s origins as well as the failure to recognize the power of its rapidly evolving platform, this is to be expected.

Over half of revenue comes from trading operations

52 percent of the F2Q22 revenue ($164.8M) was driven by Voyager’s trading operations, down from 53 percent in F1Q22 quarter and from 58 percent of the mix in F2Q21, where multiple contributors form the other half. 

H.C. Wainwright analyst Kevin Dede commented in a research report how roughly $16M was added in quarterly run-rate revenue through its merchant service business, while stating confidence on the recent call in generating $40M in quarterly revenue through its lending and staking program. Roughly 60% of Voyager’s lending business runs through Alameda Research, the quant crypto firm backing FTX’s trading platform; the balance of Voyager’s lending appears well diversified. 

Voyager relies on Blockdaemon for staking, although recently struck an agreement with Figment to leverage their staking infrastructure. These both help drive revenue from the $5.9B of assets on Voyager’s platform as of year-end, up from $4.3B at the end of the September quarter. Dede expects Voyager to start running its own validator nodes—running nodes generates as much as 100 bps more yield— in expanding staking operations that now includes 11 coins. 

Voyager currently offers 85 coins

The coin count on the trading platform has expanded to 85 as of this week’s call with management’s designs intent on providing as many as 100 on the platform. Each new coin adds on to the increase of revenue opportunity, and greater profitability on less recognized coins, given spreads are wider on low-volume coins. While no specific dates were offered, Voyager continues to prep the launch of its trading operation in Europe, most likely starting in France and Denmark, sometime this calendar year. Voyager is also confident in opening Canada to its platform, but progress on the NY Bit License was not addressed. 

Dede continues in his report: “On the strong results posted and commentary signalling a pick-up in trading activity thus far this quarter, we continue to see Voyager’s multidimensional business neglected at the current share price, especially as viewed against valuations accorded other crypto businesses that overlap Voyager’s staking and lending activities. 

We imagine the valuation deficit erodes on better understanding that comes with consistently reported results. Meanwhile, we see our thesis validated on the strong quarter results and continue to call Voyager our favourite stock pick this year.”

Value expectations
Voyager expended $43M more than what H.C. Wainwright assumed in SG&A expense, with a majority tied to rewards paid to customers, marketing, and sales. The expense cut EPS to $0.01 in the quarter versus our $0.18 estimate, and they suspect Voyager’s expense level to remain in the current range if not rise higher. They are therefore leaving their revenue estimates relatively unchanged from the last report, however they do account for greater levels going forward. Their new FY22 estimates stand at $552.4M and ($0.14), changed from $529.5M and $0.50. For FY23, sales remain unchanged at $752M, but EPS falls to $0.61 from $1.20. 

Buy rating stands with unchanged C$28 price target. 

H.C. Wainwright based the price target for Voyager on a 36x P/E multiple, and they believe this is warranted given Voyager’s growth as sales for fiscal 2021 of 175.1 million were up from June 2020s sales of $1.1 million.

Their forecasts have sales tripling this year ending June 2022, and up 1.4x, or 36%, in 2023 vs. 2022—and operating margin structure in the 30-50%; it is unclear where that margin settles out. Their target of C$28, or $22.00, on a 36x P/E ($1=C$1.27 as of February 15) is justified by June 2022 estimated sales growth, compounded by the profitability in the financial model, as noted. 

Voyager carries all the speculative risk some see in cryptocurrency plus crypto volatility, compounded by the higher risk exposure in small cap companies, such as: dilutive capital raises, short operating history, severe competition, and regulatory changes. Dede adds that the Alameda Research $75 million funding deal, intended to tap NFT opportunities, ties Voyager to FTX Exchange operating outside the jurisdiction of both Canadian and U.S. regulators. Voyager may face greater regulations as the geographic scope of its operations expands. 

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