Voyager Digital (OTC:VYGVF) (TSE:VOYG) is a rapidly growing cryptocurrency exchange. The long-term growth potential is currently overlooked by the market. It is now trading almost 70% below its all-time high of over $30 (USD) in April 2021, despite having impressive fundamental growth since.
The successful marketing, funding of accounts, and expanding breadth of operations make Voyager any crypto bulls dream.
I believe that Voyager should not be considered a short-term play based on the heavily volatile crypto prices. I am bullish on Voyager due to a growing market, high user acquisition, and trading at lower multiples compared to the competition.
Revenue Drivers
Voyager revenue is driven by the combination of volume traded and the number of users. Voyager is slightly more diversified than many crypto equities due to being driven by volume, which isn’t as dependent on the price of an individual coin or token, which miners tend to be. The total volume traded for the industry is out of Voyager’s control, like price.
Volume is heavily influenced by price, so it shouldn’t be overlooked, but it is less important than volume for Voyager. Significant volatility in prices causes large volume spikes, such as when retail investors FOMO in the newest dog-based crypto based on a tweet, ultimately resulting in a brief revenue jump.
Total volume for the market has been lower since the May 2021 crash, yet still higher than volumes in 2020. So it is relatively safe to say that volumes are at or near the bottom.
Account Acquisition
Just as important as traded volume is the number of funded accounts. Unlike volume, which Voyager has minimal control over, funded accounts are significantly impacted by Voyager’s operations.
User acquisition currently costs $80 but is expected to rise. Customer acquisition costs are paid back in three months as of Q1 2022 financials, and management has a goal of keeping the payback period under four months.
Most recently, Voyager sponsored the USA women’s soccer league on a multi-year contract. This may be a follow-up to the success seen from Mark Cubans’ Dallas Mavericks and NASCAR driver Landon Cassill sponsorships.
Funded accounts rose significantly since the start of 2021 from only 43,000 to over a million as of November 10, 2021. The conversion rate of verified users to funded accounts has also gone up from ~26% at the start of the year to ~37% most recently.
Additionally, AUM grew 35x, outpacing funded accounts which only grew by 23x. So, not only are accounts being funded more often, but account holdings are also growing, although largely due to the appreciation of crypto.
Growing Opportunities
Additional offerings include a soon-to-be-launched debit card, which has up to 9% APY for cash held within the account. The 9% APY comes from the USDC coin being staked and is passed through to the customer while adding the convenience of a debit card.
A common complaint is how Voyager is mobile-only, but this should be changing in 2022 with the launch of a desktop app. Desktop adoption may increase user adoption.
The Voyager loyalty program used as a marketing program seems to be a success, at least in the time it has existed. It appears to be a cost-effective recruitment tool due to the amount of VGX needed, which will create additional income for Voyager. The Refer-a-Friend program lowers the cost of acquiring a customer from the current $80 to $30-$40, clearly a win for Voyager.
European expansion is underway after the approval of French regulators, which allows entrance into all of the EU. Just by raw population, the EU expansion will increase the available market to ~770 million people from ~330 million people.
The Negative
Voyager, like most crypto equities, has been diluted over the last year. Voyager’s diluted shares have grown by 50% over the last year; however, management has taken a turn and has started buybacks in December.
Negative earnings and negative operating cash flows are clearly worrying. If crypto holdings were to be liquidated, operating cash flows wouldn’t look too grim, with only a loss of ~$5 million.
Comparison
Coinbase (COIN) currently has 7.4 million monthly transacting users, the closest provided equivalent to funded accounts available. COIN has ~27x the users of Voyager but is trading at ~33x the market cap.
Voyager’s price-to-sales ratio is at 6.1x, while COIN’s is higher at 9.8x when annualizing the most recent respective earnings. Voyager announced preliminary revenues of $415 million for calendar year 2021, which would result in a price-to-sales of 3.7x.
Wall Street’s Take
Turning to Wall Street, Voyager Digital stock earns a Strong Buy rating with five Buys assigned during the last three months.
The average Voyager Digital stock price target of $22.49 USD implies 138.2% upside potential.
Conclusion
I am on the same side of Wall Street. I believe Voyager is a Buy. Voyager’s 2021 growth is set to continue in 2022. The new value propositions and expansion into Europe will propel growth.
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