It’s been a depressing past 12 months for fans of cryptocurrencies like bitcoin, which has lost over half of its value since the end of last summer. And the impact has been felt across the whole crypto ecosystem with currency miners and brokerages also feeling the heat.
Put Canadian crypto company BIGG Digital Assets (BIGG Digital Assets Stock Quote, Charts, News, Analysts, Financials CSE:BIGG) in that category, says PI Financial analyst Kris Thompson, who reviewed BIGG’s latest quarterly report in an update to clients on Wednesday. Thompson maintained a “Buy” rating on the stock while lowering his target price from $1.25 to $0.75 per share, saying BIGG Digital is performing well as a business but the downturn in crypto prices has had a direct impact on the company’s top and bottom lines.
Vancouver’s BIGG Digital currently has four business lines: Netcoins, an online cryptocurrency brokerage; Blockchain Intelligence Group, a developer of compliance, search and forensics security and accountability software; TerraZero, a metaverse development group; and a strategic investment in crypto miner Luxxfolio.
BIGG announced its second quarter 2022 financials on Monday, coming in with revenue of $2.2 million compared to $4.5 million a year earlier. For the six months ended June 30, revenue was $4.8 million compared to $8.2 million for the first half of 2021. Meanwhile, EBITDA for the Q2 came in at negative $3.6 million compared to positive $0.1 million a year ago.
“While Q2 2022 showed a slight revenue contraction from Q1, Blockchain Intelligence Group revenue remained steady and Netcoins significantly outperformed its trading peers by only contracting 12 per cent, despite industry wide volumes falling by as much as 39 per cent. Netcoins customer base grew by over 13 per cent in the quarter, and as volume and volatility return to the market, we are very well positioned to take advantage,” said CEO Mark Binns in a press release.
Management noted the expansion of Netcoins over the quarter, with 20 more cryptocurrencies added to the platform for a total of 36, and said that overall the company remains healthy, with no debt and no loans of customer or company assets.
Looking over the Q2 results, Thompson rated their impact on BIGG as “Neutral,” saying that the topline and margin were strong given the market backdrop in crypto but that high operating costs and the “terrible” crypto market took their toll.
“Total revenue of $2.2 million was driven by Netcoins revenue of $1.7 million, down 12 per cent QoQ. Trading volume of $132 million was down six per cent QoQ (versus global spot volumes down about three per cent but better than many CEXs down more than 25 per cent). Gross margin on Netcoins volume remained strong at 1.33 per cent. The compliance segment delivered 30 per cent YoY growth with revenue of $500K,” Thompson wrote.
The analyst noted that Netcoins had about 80,000 users by the end of the second quarter of 2021 and about 168,000 by the end of Q2 2022 (and then dropping to about 172,000 currently).
BIGG’s ad spending dropped to $2 million over the quarter versus about $3 million in both the Q4 2021 and Q1 2022.
“Our understanding is that this discretionary expense has been materially curtailed in Q3/22 given the poor crypto market. We continue to see the need for platform consolidation in Canada as this ad spend seems uneconomical when comparing CAC to LTV, at least in the current market, which could change in a heartbeat,” Thompson said.
On Netcoins’ expansion in coin offerings, Thompson said when the crypto rally commences it should become an advantage for the company or, at least, it won’t be a disadvantage compared to its peers who also offer many coins.
At the same time, Thompson has lowered some of his estimates for BIGG. He is now calling for full 2022 revenue of $10 million compared to $14 million generated in 2021 and then moving to $18 million for 2023. On adjusted EBITDA, he is forecasting a move from negative $3 million in 2021 to negative $9 million in 2022 to positive $3 million in 2023. For the upcoming Q3 2022, Thompson is forecasting revenue of $3 million and negative EBITDA of $1 million.
“The price of cryptocurrencies are the #1 factor driving revenue and EBITDA. BIGG has the ability to curtail more variable opex, in our view,” Thompson said.
BIGG Digital, which traded as high as $4.72 in April, 2021, has lost about 75 per cent of its value over the past 12 months and has been trading in the $0.30-$0.40 range in the past few months. At press time, Thompson’s new $0.75 per share target represented a projected one-year return of 114 per cent.