Voyager Digital Ltd. (VYGVF) Big Beneficiary From Robinhood Fallout

Summary

• Voyager’s valuation is challenging given its early stage and the limited number of publicly traded pure-play digital exchange companies.
• Voyager's AUM, daily net deposits, and new accounts continue to grow exponentially. Given the dramatic increase in AUM and trading velocity, we increase our estimates.
• Robinhood's shutdown is another catalyst to Voyager's growth. Can they keep pace with new demand ?

BUY

Price Target

$13.00

Company Description

Voyager Digital Ltd. is a crypto-asset broker that provides retail and institutional investors with a platform to invest and trade in digital assets. Through its mobile friendly platform, users can invest in more than 50 cryptocurrencies and earn interest on 22 different digital assets.

Voyager Digital Ltd. (VYGVF)

The company announced a record January 2021 processing over 1 million trades during the month. The company surpassed $500 million in AUM by mid-January and continues to experience exponential growth. We are bullish on VYGR’s long-term prospects. We maintain our BUY rating and increase our target price to $13.00 per share (earlier $8.50).

52-Week Range Shares Outstanding	$0.08 – $10.00 129.5 million	Total Debt Debt/Equity	$1.1 mil 0.1%
Insider/Institutional	66.0%/1.0%	ROE (LTM)	NM
Public Float	55.7 million	Book Value/Share	$0.06
Market Capitalization	$1.14 billion	Daily Volume (3 mo. Avg.)	741,798

FYE JUNE	FY 2020A	FY 2021E		FY 2022E
EPS ($)	ACTUAL	CURRENT	PREVIOUS	CURRENT	PREVIOUS
Q1 Sep	$(0.04)A	$(0.04)A	$(0.04)A	$0.02E	$0.00E
Q2 Dec	$(0.01)A	$(0.02)E	$(0.02)E	$0.04E	$0.02E
Q3 Mar	$(0.02)A	$(0.02)E	$(0.02)E	$0.06E	$0.03E
Q4 Jun	$(0.06)A	$0.03E	$(0.00)E	$0.08E	$0.04E
Year*	$(0.13)A	$(0.05)E	$(0.08)E	$0.21E	$0.07E
P/E Ratio	NM	NM		42.6x
Change	NM	-60.0%		NM
FYE JUNE	FY 2020A	FY 2021E		FY 2022E
Revenue ($ mil.)	ACTUAL	CURRENT	PREVIOUS	CURRENT	PREVIOUS
Q1 Sep	$0.1A	$2.0A	$2.0A	$26.5E	$13.5E
Q2 Dec	$0.1A	$3.5E	$3.5E	$28.8E	$15.3E
Q3 Mar	$0.3A	$17.7E	$7.7E	$31.4E	$17.3E
Q4 Jun	$0.7A	$30.1E	$11.9E	$34.3E	$19.6E
Year*	$1.1A	$53.3E	$25.0E	$121.0E	$65.7E
Change	1,217%	4,537%		126.9%

* Numbers may not add up due to rounding.

* All numbers are non-GAAP.

Business Update

The Voyager app processed over 1 million trades during the month of January 2021, compared with 200,000 trades that were processed in December 2020. As of January 15, 2021, assets under management (AUM) surpassed $500 million, up 117% from year end. VYGR expects trading volume to be 1.25-1.5x AUM per month versus a historic turnover rate of .75x-1x AUM. Voyager's AUM, daily net deposits, and new accounts continue to grow exponentially. Given the dramatic increase in AUM and trading velocity, we increase our estimates. We maintain our Buy rating and increase our target price to $13.00, implying a price appreciation potential of 46%.

PRIMARY RISKS

Voyager frequently has acquisitions. Failure to integrate any acquisition could result in additional risk and uncertainty for the business. Crypto-related businesses face a very uncertain regulatory environment. There is high ambiguity and lack of clarity from many governments globally. Any unfavorable change could negatively impact operations.

EARNINGS ESTIMATE

For FY:21, VYGR expects strong growth to continue, led by geographical expansion, new product launches, and platform enhancements. Some examples of new products include the development of debit and credit cards, margin products, desktop, and continued expansion of its interest program. In addition to adding new features and implementing platform enhancements, VYGR is also focused on expanding internationally and bringing the Voyager App to investors in other countries.

For FY:21, we forecast revenue of $53.3 million compared to $1.1 million in FY:20. We forecast an EBITDA loss of $3.8 million, a net loss of ~$5.7 million, and earnings per share of $(0.05). We expect revenue to continue to grow and anticipate improvement in profitability given the inherent operating leverage of the business model.

VALUATION AND RECOMMENDATION

Voyager’s valuation is challenging given its early stage and the limited number of publicly traded pure-play digital exchange companies. Since there are no direct public pure plays available, we are valuing Voyager using the most recent available information about similar private crypto firms. We refer to Coinbase as its direct peer. In 2019, Coinbase’s latest valuation is estimated to be $8 billion with revenue of ~$543 million. This valuation implies an EV to Sales multiple of ~14.7x.

We believe VYGR should trade at a similar multiple given expectations for continued high revenue growth and momentum for cryptocurrencies. We value VYGR at ~14.7x FY:23E sales of ~$171.5 million and discount that result back at a ~15% cost of capital. As a result, we arrive at a multiple based target price of $13.00 (or C$16.50).