PI Financial analyst Kris Thompson has had to alter his expectations for Canadian cryptocurrency company BIGG Digital Assets (BIGG Digital Assets Stock Quote, Chart, News, Analysts, Financials CSE:BIGG). Though he maintained a “Buy” rating for the company, he reduced his target price from $2/share to $1.25/share for a projected return of 135.8 per cent in an update to clients on Monday.
Founded in 2017 and headquartered in Vancouver, BIGG owns, operates and invests in crypto businesses, including Blockchain Intelligence Group, a developer of compliance, search and forensics security and accountability software, and Netcoins, an online cryptocurrency brokerage.
Thompson’s latest analysis comes after the company filed its fourth quarter financial results, along with 2021 year-end figures.
“While the Company is executing well within regulatory handcuffs, the crypto market has deteriorated such that we realistically need to modify our trading volume estimates, revenue and EBITDA outlook, and target price,” Thompson said.
BIGG’s financial report was headlined by revenue of $3.3 million, which was a slight miss in relation to the PI Financial estimate of $3.6 million, though it still represented a 25 per cent sequential increase and 223 per cent year-over-year growth. The company’s revenue in the quarter was driven by Netcoins revenue of $2.8 million, which represented a 27 per cent sequential increase.
Meanwhile, the company’s gross profit was $3.2 million compared to the $3.4 million estimate from PI Financial, though the margin produced a beat at 97.4 per cent compared to the PI estimate of 94.1 per cent, and also yielded sequential growth of 24 per cent.
However, BIGG reported an EBITDA loss of $3 million, a miss in relation to the $0.4 million loss projected by PI Financial.
“Despite a depressed crypto market thus far in 2022, BIGG continues to develop its primary businesses and invest in new emerging businesses and opportunities,” said Mark Binns, CEO of BIGG Digital Assets in a May 2 press release. “We look forward to sharing further updates on our progress in the near future.”
Thompson continues to keep an eye on Netcoins’ user base, which has steadily grown from 80,000 at the end of Q2 2021 to 100,000 at the end of Q3 2021, then to approximately 120,000 users at the end of Q4 2021, with further expected growth coming on account of a doubling in ad spending to $3 million in the quarter.
According to Thompson, BIGG ended the quarter with approximately $50 million in cash and crypto assets with a $205 million trading volume, along with a $10 million investment in metaverse operation TerraZero.
The recent reports have prompted Thompson to slash his financial projections, lowering his 2022 revenue estimate from $34.2 million to $14.7 million, with the reduction coming almost entirely from Netcoins, though the revised figure still represents a 4.3 per cent year-over-year increase. Looking ahead to 2023, Thompson has established a projection of $25.1 million for a potential year-over-year increase of 70.7 per cent.
In terms of valuation, Thompson forecasts the company’s EV/Revenue multiple to rise from the reported 5x in 2021 to a projected 5.4x in 2022, then drop to a projected 3.2x in 2023.
For Thompson, the biggest concern with Netcoins is its lack of variety, with only 22 types of coins offered compared to bigger numbers from competitors like Newton (71 coins), Wealthsimple, Coinsquare, WonderFi and NDAX. Furthermore, Thompson notes that 90 per cent of Netcoins’ revenue is derived from Bitcoin and Ethereum.
“It’s important to add new coins ASAP since subscribers may choose another platform based on the number of coins leading to lost market share opportunity,” Thompson said.
Meanwhile, Thompson dramatically shifted his EBITDA projection for 2022 from $14.4 million to a loss of $4.8 million, though he expects a positive turn in 2023 at $6.3 million for a margin of 25.3 per cent, while also introducing an EV/EBITDA multiple of 12.6x.
Thompson also slashed his gross profit projection for 2022 from $32.8 million and a 96 per cent margin to $13.7 million and a 93.2 per cent margin, with a forecast of $23.7 million and a 94.6 per cent margin in play for 2023.
“We are revising our model to reflect lower transaction volumes, which is strictly due to the lower price of cryptocurrencies,” Thompson said. “Netcoins is fighting the macro environment with ad spend, which should counter the tough crypto market but will take time to assess.”
BIGG Digital Assets’ stock price has tumbled to a 46.3 per cent loss since the start of 2022. After a brief spike to $1.47/share on February 7, the stock has gone back down, having dropped to a low point of $0.53/share on April 29.