Connecting the Digital Economy with Major Partners Signed and Strong Revenue Growth Momentum



KEY POINTS
  • Bakkt is a digital asset platform B2B2C company with major partners already signed, including Mastercard, Finastra, Wells Fargo, Bank of America, Global Payments, and Fiserv. While the company’s stock has gotten hit with the crypto declines in 1H22, its advantages are significant: (1) a scalable and flexible platform that provides a one-stop-shop for connecting crypto to banking; (2) a diverse business model that is not solely reliant on crypto; (3) high ease-of-integration software; (4) compliance driven in a highly regulated environment; (5) more than $350 million in cash to continue investing and weather the crypto storm; and (6) key partner wins that point to a strong product and the right price.
  • Management is fully committed to crypto and sees its adoption growing over the years. The total serviceable market was $1.6 trillion in 2020 and is projected to be $5.1 trillion in 2025, a 26% CAGR. Sitting at the confluence of crypto, loyalty, and payments, Bakkt is uniquely differentiated.
  • Regulatory compliance first infrastructure is a differentiated strength of Bakkt. Borne out of NYSE-owner Intercontinental Exchange, Inc. (“ICE”) (NYSE: ICE), Bakkt is secure and fully regulated, creating a significant moat that comes to the forefront when markets are in turmoil, as they are now. Bakkt is one of less than 20 firms that have a New York Bitcoin license. It also operates a qualified custodian with a trust charter and is regulated by the NYDFS.
  • Now that Bakkt has several partners signed up, the next step will be activations—when the customer is live and fully integrated with the Bakkt platform. Investors are watching for activations as a clear sign Bakkt is making progress. Investors should be getting an update on how the company’s partnerships are tracking on the 2Q earnings call in August.
  • Consensus estimates Bakkt’s 2022 revenue growth will be more than 50%, after it grew more than 30% in 2021. As Bakkt is still investing for growth, EBITDA margin is expected to be negative again this year and next but improving from -221% in 2021 to
    -189% in 2022 and -63% in 2023. The company had more than $350 million in cash at the end of 1Q22 and a burn rate of $36 million, implying more than two years of runway to cash positive.
  • Bakkt’s comparables include digital wallet and crypto companies, and other deSPACs. The comps have a median forward P/S that range from 0.7x for de-SPACs to 2.3x for crypto, while BKKT is trading at 2.7x. BKKT is trading near its 52-week low, roughly in line with its comps.
OUR INSIGHTS

The Opportunities

Bakkt is tapping into the $1.6 trillion of digital assets across cryptocurrencies, rewards and loyalty points, gaming assets, and gift cards, which have the opportunity to grow to $5.1 trillion by 2025. Its partnerships with the likes of Mastercard and Fiserv show that its technology works for some of the most demanding customers, its pricing is competitive, and the features it provides are in demand. While its crypto business is ramping, the loyalty business should continue to bring in solid revenue.

The Obstacles

The recent downturn in crypto has taken a toll on consumers’ confidence in the crypto-based approach and it could take some time to work through and regain that confidence. Digital assets are a new asset class and are likely to see regulatory changes over the next few years. How investors and consumers use cryptocurrencies, NFTs, and other digital assets could evolve. However, the growth potential for digital assets is significant as its $1 trillion in value is significantly smaller than global stocks ($198 trillion) and global debt ($295 trillion).

Upcoming Fireside Chat

We will be hosting Bakkt CEO Gavin Michael for a fireside chat on August 16, 2022, at 11:00 am EDT. It is open to all investors. Click here to register. Read our reports on Bakkt on our website.

Bakkt is a digital asset platform B2B2C company with major partners already signed, including Mastercard, Finastra, Wells Fargo, Bank of America, Global Payments, and Fiserv. While the company’s stock has gotten hit with the crypto declines in 1H22, its advantages are significant: (1) a scalable and flexible platform that provides a one-stop-shop for connecting crypto to banking; (2) a diverse business model that is not solely reliant on crypto; (3) high ease-of-integration software; (4) compliance driven in a highly regulated environment; (5) more than $350 million in cash to continue investing and weather the crypto storm; and (6) key partner wins that point to a strong product and the right price.

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