By Daniel Zychla
In the most basic terms, Voyager Digital (OTCQB: VYGVF) is a publicly traded cryptocurrency brokerage offering users the ability to simply and easily buy and sell over 60 digital assets and earn industry leading interest through staking and lending. The long run bull case for the company is much more exciting with the potential to become a financial powerhouse based on the blockchain with the launch of debit cards, stocks, loans, payment processing, and much more.
Voyagers business generates revenue from multiple different sources such as trading volume, staking & lending, as well as payment processing through their recent acquisition of Coinify. Below is an image of Voyagers Q1, 2022 financial results ended September 30th; keep in mind their fiscal year is 6 months ahead of the normal calendar:
Transactional revenue is the biggest and most profitable chunk of their overall revenue and consists of the spread that Voyager generates whenever someone buys or sells a digital asset. As of their last conference call, they averaged 110 basis points off of each trade. Keep in mind that Voyager is not an exchange but rather a brokerage that connects to over a dozen different exchanges, allowing them to have larger access to liquidity, more places to route orders to if certain exchanges temporarily crash or shut down, and the ability to take advantage of inefficiencies in crypto pricing on certain exchanges. Although Voyager is technically generating 110 basis points in revenue whenever someone places a trade, their smart order routing system on market orders is almost always able to find an exchange with price inefficiency to reduce the overall price paid by 10s or even 100s of basis points. Transaction revenue is directly correlated to volume on the platform and will fluctuate with the crypto market.
Merchant services is Voyagers subsidiary Coinify, which is involved in the crypto payment processing space. This part of their business has massive long term potential to become the Square of crypto payment processing as they expand its services throughout Europe and into the United States. This metric is the volume processed throughout the quarter, so although it still doesn’t have a material impact on the companies cash flow, the businesses maturation throughout 2022 and beyond may provide a more stable revenue source in the event of a potential bear market.
Fees from crypto assets loaned & Staking revenue can be bundled together as this is the money that Voyager takes in from the customer’s crypto that has been either lent out or staked. One of the BIG advantages of using Voyager is their industry leading interest rates on the cryptocurrencies that they offer. To view the platforms interest rates, please head over directly to Voyagers blog. Revenue from this segment is expected to reach over $50 million in their most upcoming quarter and should make this segment of their business roughly break even on a profitability basis.
Other Revenue is a segment dedicated to the recently launched Voyager Loyalty Program based on Voyagers native cryptocurrency, the VGX Token. We’ll go through the actual Loyalty Program in a moment, but “Other Revenue” consists of the value of tokens utilized from Voyagers own pool of VGX to fund activity relating to the loyalty program such as paying out rewards.
Voyagers competitive advantage comprises their unique product offering. We will talk about the companies future competitive advantage, but currently Voyagers ability to operate a platform that is easy to use, aesthetically pleasing and a positive for peoples wallets given their large crypto and interest offering which has allowed them to grow their funded accounts from 43,000 back on December 31, 2020 to over 1,000,000 as of November 10, 2021. This sets Voyager up very nicely to hit over 1.1 Million funded accounts by the end of 2021 representing over 2450% growth year over year, unlike anything seen in the industry. Below is a table that I created showcasing Voyagers growth in funded accounts throughout 2021:
Funded account growth is a great testament to the success Voyager has had in growing their platform, and the quality of their actual product. In comparison to other competitors out there, Voyager stands out in many key ways.
It is very important for any brokerage or exchange to offer variety. Voyager offers the user the ability to buy or sell 68 different cryptocurrencies on their platform; this number is expected to rise with time. Back in January, Voyager was one of the first crypto platforms to allow trading of Dogecoin. When the cryptocurrency went parabolic, Voyager experienced a surge in demand for their platform showcasing the power that a vast crypto offering has on both customer growth and increased trading volume.
Interest is a major driver of customer growth and retention for Voyager, the platform’s industry leading interest rates make it the clear winner when it comes to earning monthly income with Bitcoin or 30+ other cryptos. Voyager is also one of the few platforms to have no drop off in interest rates as $ amount held increases. For example, as of November 1, 2021 BlockFi gave its users 4.5% APY on the first 0.1 Bitcoin held, but if a customer held any more than 0.35 Bitcoin, that rate drops to 0.1%. With Voyager, there is a flat 5.75% rate no matter if you hold 0.01 Bitcoin, or 100 Bitcoin. This is a big differentiator for the company and something that drives a vast variety of cryptocurrency investors to the platform.
Voyager has an industry-leading loyalty program that is driven by the VGX Token. The program allows customers to get additional benefits based on how much VGX is held in their account. This includes things such as interest rates, cashback on trades, refer a friend rewards, and much more moving forward into the future as the program expands. The program is paid for by utilizing Voyagers own pool of VGX and is unlike anything in the industry; further establishing the companies lead and dominance over competition.
Voyager’s potential from a multi-year time horizon is epic, gaining over 1 million accounts and nearly $7 Billion in assets under management over the span of less than a year is a small glance into the long term growth potential that Voyager poses as a company. Funded accounts is one of the best metrics to use as it allows for extrapolation of revenue based off of growth in funded accounts and revenue per funded account.
As someone who studies stocks regularly, my goal is to be as conservative as possible which is why I will only be utilizing transactional revenue in my long term model to show how undervalued the business is with that alone; It also is the most consistent cash flow generator for Voyager at this point in time. As of the quarter ended September, Voyager earned $19 in highly profitable revenue per funded account solely from crypto trading volume. Keep in mind crypto saw a mini bear market throughout the quarter which lead trading volume to experience a dip throughout the quarter. The company started the quarter with 665,000 funded accounts and grew that to 860,000. The midpoint of the two is 762,500 which when divided into their transactional revenue of $43,514,000 equates to just about $19 per month in revenue per user on average. Keep in mind I did not include revenue from Coinify which is not correlated to funded accounts, or revenue from loans/staking which is currently unprofitable, and probably won’t be significant to the bottom line for years to come given Voyagers consumer first focus.
When looking at my long term model for Voyager, I will be using $30 in monthly revenue per funded account from crypto trading revenue as a baseline.
The model utilizes 3,000,000 funded accounts which I believe to be inevitable at some point over the coming years. I personally think sometime in 2023 is a decent estimate, but given international expansion into Europe and Canada throughout 2022, the number could come much sooner than anticipated. Extrapolating these metrics out, Voyager gets to a revenue run rate of just over $1 Billion at some point over the next couple of years depending on the state of the crypto market and efficiency of their advertising. Keep in mind we are utilizing solely transactional revenue which is nearly all profit; ~91.3% gross profit margin in their latest quarter. This leaves a good amount of leeway for G&A as well as Marketing expenses which may still be high given that the company will still be in hyper growth mode. Now utilizing a 22.6% tax rate which is roughly in line with Coinbase, it is not unreasonable to expect the crypto trading side of Voyagers business to generate $300 Million yearly in profit by the end of year 2023 from just the crypto trading side of their business.
The model utilizes VYGVF’s fully diluted market cap, factoring in all warrants and options that have yet to expire, as well as recent share based acquisitions such as Coinify. This paired with a reasonable set of P/E ratios for a FinTech company says that solely the crypto trading side of Voyagers business has the potential to be worth any where between $30 to $50 in share price within the next couple of years. This does not factor in any of the dozens of potential business ventures that Voyager plans on getting into over the coming months and years which act as a cherry on top.
The beautiful thing about the model above is that it values Voyager based off of a predictable, profitable and recurring stream of revenue. However, the biggest potential for these companies lies with the set of products that they plan on launching over the coming months and years which will significantly add to the revenue and profit stream of the business.
Voyager recently went into a partnership with Market Rebellion to create a stock trading side for the Voyager platform. This has major potential to not just grow Voyagers potential demographic, but also increase revenue per customer in a major way.
Voyagers Debit Card back by USDC is set to be launched very soon and will be a gateway to allow people to start getting payed straight to their account, earnings a high single digits yield, and spending funds from there. However, expansion into credit and crypto spending will allow Voyager to increase engagement on the platform, build revenue, as well as create an Apple like ecosystem where the more products owned/utilized, the harder it gets to switch.
Coinify has major potential to be a dominant name in payment processing industry. As mentioned before, this could be a home run for Voyager if marketed correctly. Having Voyager on the backend compliments the business very well and is great from a vertical integration point of view.
Major potential to drive growth in users and revenue and will be very important once stock trading introduced. However, educating users should be a priority as margin can be a very easy way to lose money.
Crypto Backed Loans
One of the hardest businesses to value, but if Voyager gets this right, this could be a true indication that they are on the brink of becoming a fully fledged replacement of the everyday bank.
Although Voyagers business model and fundamentals are very strong, there are some potential risks that may impact the future growth of the company:
A crypto-currency cold winter is something that will significantly impact growth at Voyager from both a revenue and account perspective. When crypto goes into a bear market and experiences elongated negative sentiment, there is a decrease in demand to trade and sign up for crypto platforms like Voyager. Although this may lead to a drop off in crypto trading revenue, I am confident that Voyagers international expansion paired with the launch of more sustainable revenue sources such as payment processing and stocks will pose a damper on the deceleration of both customer growth and revenue in the event of a bear market.
A potential hack of the Voyager platform is a risk that needs to be addressed. Although the affects of it could be detrimental to Voyager as a company, the chances of it happening remain very slim. Voyager holds their funds in several custodians, this takes a lot of the risk out of Voyagers hands and insures everything is not held in one place. In addition to that, USD held within Voyager accounts are FDIC insured up to $250,000. Keep in mind that crypto held within Voyager is not insured, although it is assumed that a majority of the custodians which Voyager holds crypto in have their own insurance policies. Either way, Steve Ehrlich has gone on record many times saying that security is the companies number one priority, and the steps they have taken to secure identity and safety make me confident that Voyager will not experience a platform hack.
Voyagers inability to innovate may pose a threat to rising competition in the crypto space. If Voyager is unable to innovate and create the products listed under their pipeline, this may be a risk that severely impact customer growth moving forward. Over the past year, Voyagers ability to launch their reward/yield platform, loyalty program, payment processing with Coinify, and make significant strides in creating a stock trading platform gives me the confidence that they will keep up with competition over the coming years.
Voyager Digital presents a massive opportunity as a stock, company, and token. However, if the company executes on their long term vision of becoming a lifestyle financial app, the opportunity becomes extraordinary. As a man with experience, Steve Ehrlich (CEO & Co-Founder) is a man that I trust more than ever to guide Voyager in the right direction and turn it into the financial powerhouse of the future.
I hope you enjoyed the article, if you would like to follow me on YouTube to enjoy more frequent Voyager updates, feel free to do so here. Other than that I hope you all have a phenomenal day!
Disclaimer: Everything expressed in this article is a personal opinion provided for entertainment and educational value only. I am not a professional nor a financial advisor. These are not instructions, suggestions, nor directions as to how to handle your money. Please, always do your own due diligence.