Crypto stock Voyager Digital downgraded by Eight Capital

Adhir Kadve of Eight Capital has shifted his value perception on Voyager Digital Ltd. (Voyager Digital Stock Quote, Charts, News, Analysts, Financials CSE:VYGR), downgrading his rating of the stock from “Buy” to “Neutral” and slashing his target price from $17/share to $4/share for a one-year projected return of 203 per cent in an update to clients on Friday.

Founded in 2018 and headquartered in New York City, Voyager Digital is a digital asset focused agency broker and financial services firm with 3.2 million Verified Users and over one million funded accounts.

In Kadve’s latest analysis, the analyst commented on continued struggles within the cryptocurrency sector.

“Cryptocurrency markets continue to display heightened volatility, with overall market caps and trading volumes continuing to decrease,” Kadve said. “Further exacerbating this volatility are job cuts at several well-known crypto firms due to fear of a protracted downturn in prices, as well as several crypto firms that have paused or limited user asset withdrawals amidst this volatility.”

Central to Kadve’s concern, along with that of the consensus, is a Singapore-based crypto hedge fund called Three Arrows Capital, which is an investor and counterparty to Voyager Digital that could be facing insolvency.

“Given this broader pullback in crypto markets, ongoing regulatory concerns and the opacity of events surrounding 3AC, we are reducing our Target Price and Rating on VOYG as we await more stability in crypto markets and clarity prior to growing more constructive on the name,” Kadve said.

Kadve believes Three Arrows could be holding as much as 16 per cent of Voyager’s $2.02 billion loaned AUM, which poses the risk of Voyager users potentially losing their funds due to Three Arrows’ potential insolvency, as Voyager earns “yield” through its Earn program, which had previously been subject to Cease and Desist orders in eight US states. 

The program sees Voyager lending its users’ crypto assets to institutional investors, or to other exchanges, to facilitate liquidity. Voyager then charges a fee to these counterparties and earns compensation, which is then passed along to their users as ‘rewards’.

In the name of boosting its fortunes and future prospects, Voyager recently signed a non-binding term sheet with Alameda Research to secure two revolving lines of credit to provide Voyager with access to further capital, with one valued at US$200 million and the other coming in at 15,000 Bitcoin.

Both credit facilities carry an expiration date of December 31, 2024, and they are only intended for use in the event that Voyager Digital needs to safeguard customer assets.

“Today’s actions give Voyager more flexibility to mitigate current market conditions and strengthen our relationship with one of the industry leaders,” said Stephen Ehrlich, Chief Executive Officer of Voyager in the company’s June 17 press release. “Safeguarding customer assets is always our top priority, and ongoing, prudent risk management as well as a strong balance sheet are two ways that we continue to demonstrate that priority.”

The volatility surrounding the crypto sector has prompted Kadve to revise his financial expectations for Voyager with immediate effect, lowering his fourth quarter revenue expectation from $104.1 million to $88.7 million (all projections are in US dollars), leading to a reduced overall 2022 projection from $449.7 million to $439.8 million for a potential year-over-year increase of 150 per cent.

Looking ahead to 2023, Kadve slashed his revenue projection from $545.2 million to $354.2 million, with the revised figure suggesting a year-over-year loss of 19 per cent.

Despite the revenue forecast reductions, Kadve continues to forecast a low EV/Sales multiple for Voyager, setting marks of 0.0x for both 2022 and 2023 after reporting a multiple of 0.1x in 2021.

Kadve has also dramatically shifted his figures around in relation to adjusted EBITDA, as he now forecasts a loss of $8.1 million in the fourth quarter (previously a $7.2 million positive forecast) to bring the 2022 fiscal year to a close with a projected $81.5 million adjusted EBITDA loss compared to the initial $11.8 million positive forecast. Though Kadve continues to forecast a return to positive adjusted EBITDA in 2023, it comes at a significantly reduced figure of $8.9 million and a two per cent margin compared to the previous forecast of $50.8 million.

With the negative EBITDA projection for 2022, Kadve reinstates an EV/EBITDA multiple for 2023, which he has set at 1.4x.

Kadve’s operating income projections experience a similar shift, downgrading his previous projection of a $21.2 million loss for 2022 to a loss of $81.7 million, while his 2023 projection now calls for a loss of $11.4 million instead of $23.1 million in positive operating income.

Voyager Digital has seen its share price drop off a cliff in 2022, reporting a 90.5 per cent loss for the year to date after starting the year trading at $14.42/share and dropping as low as $1.32/share on June 16.