Voyager Digital gets a target cut from Eight Capital

Adhir Kadve of Eight Capital believes Voyager Digital (Voyager Digital Stock Quote, Chart, News CSE:VYGR) has hit some rough waters; despite maintaining a “Buy” rating on the digital asset focused agency broker and financial services firm, he’s slashed the target price from C$31.00/share to C$20.00/share for a potential one-year return of 62 per cent in an update to clients on Thursday.

Founded in 2018 and headquartered in New York City, Voyager Digital has enjoyed a quick rise in the digital asset and cryptocurrency industry, first being publicly listed in the opening quarter of 2019 before adding iOS and Android apps to its arsenal before the end of that year, with a desktop launch completed at the end of 2020.

Kadve’s latest analysis comes after Voyager released on Wednesday a business update which included preliminary numbers from its fiscal first quarter 2022 for the three months ended September 30. Kadve said the results were below expectations.

“The results showcased the volatility in VOYG’s transaction driven business model and the broader crypto-space as reduced trading volumes in July and August resulted in lower trading fees earned,” Kadve said.

The numbers were headlined by revenue between $63 and $67 million (all report figures in US dollars unless otherwise noted), falling well short of the Eight Capital estimate of $94 million and even further off the consensus estimate of $103 million, with Kadve noting that the company was caught up in the effect of the cryptocurrency industry’s trading volumes being 40 per cent lower between July and September compared to the previous quarter.

Despite the financials being well below expectations, Kadve noted that the company did announce an increase in its user base with 2.15 million Verified users and 860,000 total funded accounts, up from the previously reported 1.75 million Verified users and 665,000 total funded accounts in the fourth quarter of its 2021 fiscal year.

In particular, Kadve believes the improved metrics showcase the progression in Voyager’s marketing initiatives both in attracting new verified users to the platform but also Voyager’s ability to convert and monetize its platform, with 40 per cent of its users being total funded accounts compared to 38 per cent in the previous quarter.

“As we exit September and reflect on the growth of our platform, we are glad to report that our Company is stronger than ever,” said Stephen Ehrlich, CEO and Co-founder of Voyager in the company’s October 6 press release. “Our marketing efforts are contributing to consistent user growth, and we’ve seen trading volume rebound following the general industry-wide downtrend witnessed in July. With international expansion and new products on the horizon, we’re more excited than ever about Voyager’s future and are positioned to operate within applicable regulatory frameworks.”

In addition to the increased user base, Kadve notes that the company believes its Rewards and Yields revenue will range between $40 and $50 million in the upcoming quarter, as the company continues to develop its staking capabilities in preparation for shifting its interest-based revenues from primarily a lending-based model to more of a staking model, with management identifying a reduction in counterparty risk and more recurring revenues as potential benefits.

The quarterly results release prompted Kadve to revise some of his financial projections. The company actually reported $109 million in revenue in the fourth quarter of its 2021 fiscal year to beat the $103-$107 million projection set by both Eight Capital and the consensus, prompting Kadve to raise his 2021 revenue estimate to $175 million with $78.4 million in adjusted EBITDA to produce a 45 per cent margin.

However, Kadve’s projections are diminished for 2022, lowering his revenue target to $353.5 million, which would still produce a potential year-over-year increase of 102 per cent, though the EBITDA projection has dipped to $77.9 million, with the EBITDA margin projection slashed in half to 22 per cent.

Kadve’s valuation projections also yield slightly mixed results for the company, with an expectation for the EV/Revenue to drop from 9.1x in 2021 to a projected 4.5x in 2022, while the EV/EBITDA remains relatively flat, moving from 20.4 to a projected 20.5x in 2022.

Meanwhile, with a reduced earnings per share projection of $0.31/share, Kadve also produces a price-earnings ratio for the first time for 2022 at 22x.

Overall, despite the reduced target price, Kadve still believes the company has potential to perform moving forward.

“We continue to see Voyager as early days in building out its platform and see several near-term initiatives including continued marketing spend aimed at attracting users to the platform, international expansion and ongoing product and platform enhancements which should support revenue growth ahead,” Kadve said.

Since it began trading on the Toronto Stock Exchange on September 7, Voyager Digital’s stock price has dropped 32.7 per cent from its initial listing price of $18.85/share, bottoming out at $12.21/share on September 28.