Mogo is all cashed up, Eight Capital reports

Despite the stock’s dramatic fall in recent months Eight Capital analyst Adhir Kadve feels the mojo around Mogo Inc (Mogo Stock Quote, Chart, News, Analysts, Financials TSX:MOGO), maintining a “Buy” rating and target price of $16/share for projected return of 226 per cent in an update to clients on December 9.

Originally incorporated in 1972 and headquartered in Vancouver, Mogo provides fintech solutions including Mogo app to access a digital spending account with Mogo Visa Platinum Prepaid Card, MogoCrypto for bitcoin transactions, MogoProtect, a free ID fraud protection, MogoMortgage, a digital mortgage experience, and MogoMoney, which provides access to personal loans.

Kadve’s latest analysis comes after Mogo announced a US$27.5 million direct offering, which has since closed.

“We see this transaction as giving Mogo increased capacity to potentially invest in strategic assets or acquire businesses in the cryptocurrency space,” Kadve said. “In particular, we believe that today’s transaction accelerates Mogo’s ability to possibly exercise its Warrant to increase its ownership in Coinsquare (private) to about 49 per cent (Mogo currently owns 39 per cent of Coinsquare).”

The offering consisted of an aggregate of 6,111,112 common shares and warrants to purchase up to an aggregate of 3,055,556 common shares at US$4.50/unit. Each warrant issued by Mogo entitles its holder to a common share at an exercise price of US$4.70/share, exercisable six months from the date of closing, and carrying a term of 36 months.

All told, Kadve estimates the direct offering boosts Mogo’s balance sheet to $78 million in cash on a pro-forma basis.

Of particular interest to Kadve is Mogo’s continued investment in Coinsquare, which began as a 19.99 per cent stake in February at a value of $56.4 million, then nearly doubled its stake to 39 per cent in May and June at an additional cost of approximately $48 million. The company also owns a warrant to increase its ownership to 49 per cent for approximately $60 million which can be paid in cash or Mogo shares. 

However, Kadve notes that any further investment would need approval from Coinsquare’s board of directors as the overall stake would be greater than 50 per cent.

“We see the investment as future proofing Mogo’s crypto technology stack as bitcoin trading activity grows on the platform,” Kadve said. “For Coinsquare, we believe the key draw is access to Mogo’s 1.8mm user base and more sophisticated digital wallet and overall platform capabilities to accelerate their own technology roadmap.”

Mogo’s most recent quarterly reports arrived in November, headlined by $9.5 million in subscription and services revenue, giving the company its third straight quarter of sequential accelerating growth, as well as a year-over-year increase of 126 per cent.

Subscriptions and services played a significant role in the company’s total revenue figure of $15.4 million, representing a 58 per cent year-over-year increase.

Meanwhile, the company reported an adjusted EBITDA loss of $3.4 million compared to $4.8 million in positive adjusted EBITDA in the same quarter of 2020, and a net loss of $9.8 million compared to $1 million in net income at the same point in 2020 after Mogo scaled back its growth spending during the COVID-19 pandemic; the adjusted core net loss came in at $5.6 million, up from a $5.1 million loss in the previous quarter.

“We are still in the very early days of fintech adoption as consumers look for solutions that are built for the modern world while also most importantly helping them achieve financial freedom in a way that existing solutions haven’t delivered,” said David Feller, Founder and CEO of Mogo in the company’s November 10 press release. “With close to 1.8 million members, we have more ways to engage and support consumers on their journey to becoming financially fit. We are targeting a massive addressable market supported by long-term tailwinds, and we are investing heavily to build a next gen fintech platform that can capture more of this market.”

The company had a busy November, expanding its portfolio by making a minority investment in Gemini, a leading cryptocurrency exchange in the U.S. market, following the launch of a business program enabling merchants to offer climate-positive (‘green’) bitcoin rewards to their customers, along with the launch of a partnership with Sun Life to bring Mogo’s saving and investing app, Moka, to more than 20,000 Sun Life Group Retirement Services members.

“We continue to believe that Mogo is well positioned to be a leader in the Canadian FinTech space given its broad and expanding suite of next-gen product offerings and that the market is not fully appreciating the value inherent in the Mogo platform,” Kadve said.

Mogo Inc’s stock price is down 15.7 per cent on the NASDAQ in 2021, falling off after reaching a high point of US$11.47/share on March 19.