While Voyager Digital stock has experienced recent declines, its attempts at recovering back to $3.00 have failed. Initially rising alongside Nasdaq, VYGVF failed to keep up when it posted an earnings loss. As a result, shareholders were outraged and Voyager raised $60 million at $2.34 per share.
Voyager’s need to increase liquidity to around $225 million is necessary. When TerraUSD lost its $1.00 par value, it shook up confidence in the cryptocurrency market. This will hurt crypto transaction volumes on Voyager’s network. Should investors give up on Voyager Digital after the stock traded near its one-year low?
In its fiscal third quarter, Voyager posted a 36-cent earnings per share loss. It lost money despite growing its revenue by 69.9% year-on-year to $102.7 million. Readers will quickly find where the firm bled money. On its income statement, Voyager disclosed rewards paid to customers of $59.32 million. It spent another $30.68 million on marketing and sales. Stock-based compensation accounted for more than 10% of revenue at $12.36 million.
|Three Months Ended March 31,|
|Rewards paid to customers||59,321||7,409|
|Marketing and sales||30,367||8,935|
|Cost of merchant services||17,979||–|
|Compensation and employee benefits||12,365||2,476|
Data (in thousands of USD) courtesy of Voyager Digital
In good times when money is plentiful and stock markets are rising, investors will ignore Voyager’s expenses. They will bid the stock higher based on total verified users, which grew 9% to 3.5 million. Total funded accounts grew by 11% Y/Y to 1.19 million.
Unfortunately, the total assets of the platform fell to $5.8 billion, down from $6.0 billion in the previous quarter. This is not a red flag. Overall lower crypto prices failed to offset new deposits totaling $574 million in the quarter.
Voyager’s spending per customer added is not sustainable. Just as sports gambling firms like DraftKings (DKNG) need to cut expenses, Voyager will need to do so, too. The company is addressing its high expenses. It will re-align its rewards program. It will cut spending such that the program will at least run at breakeven levels. Investors should expect Voyager to run the rewards program at break-even levels this month or in June. It made adjustments to the program as of May 1, 2022.
Voyager will save at least $15 million a quarter.
When an analyst asked about the cease and desist order it received at the end of the quarter, Chief Executive Officer Steve Ehrlich said on the conference call “we’ve seen zero impact from the cease and desist. Business is as usual. We have – we’ll continue to operate, as I said in the statement, is that the – we’re working with each of the states.”
Voyager Digital will realize savings from economies of scale. Since signing various contracts, its user base grew. Those contracts are coming due. The company will renegotiate the deals to realize cost efficiencies. This includes higher volume discounts. Together with its cash on hand, Voyager may apply the cost savings to continue marketing its services.
When Voyager launches Loyalty Program 2.0, investors should expect a high return on investment. The strategy relies on its strong community. By sharing the benefits of the referral program with customers, investors should look for marketing costs per acquisition (or CPA) to fall steadily.
Is Voyager Digital Stock Risky?
Risk-averse customers might liquidate their assets and take them out of Voyager’s platform. Fortunately, crypto investors are well aware of the volatility. In addition, Voyager’s business is broader than just its Bitcoin (BTC-USD) and Ethereum (ETH-USD) product offerings.
Unlike Coinbase (COIN), which disclosed that customer assets do not have protection in the event of bankruptcy, Voyager offers protection. When customers sell cryptocurrency and convert them into US dollars, it is FDIC-insured. Just like any other bank, customers are FDIC-insured for up to $250,000.
Stablecoin Breakdown Effects
Weak stock markets and the breakdown in stablecoins could trigger a crypto winter. Voyager raised its cash levels to increase its capital. Should the market dry up, the company will have enough cash to continue its business.
CEO Ehrlich is experienced in managing down markets. For example, he ran his own business at Lightspeed in 2008.
The sell-off at the end of March 2022 is the only major technical trading event:
Voyager could try to rally back to the 50-day simple moving average toward $5.00. Still, the stock is in a sustained downtrend.
Investors had many chances to give up on Voyager stock. During its brief run-ups, shareholders could have sold into the rally. Now that the stock is close to its lows, investors who expect more downside should sell the stock. Others who believe management will run the reward program more effectively could keep holding the stock.
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