Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Equity Bottom-Up

<h2>KEY POINTS</h2>
<div></div>
<ul>
<li>Revenue grew 60% Y/Y, driven by strong digital asset conversions and loyalty programs. The company had more than $315 million in cash and other highly liquid assets at the end of 2Q22, with guidance for $135-140 million cash burn in 2022, implying more than two years of runway to cash positive. The stock is up more than 18% in early trading after the earnings call.</li>
<li>The company lowered revenue guidance for 2022 from $60­ - 80 million to $57-62 million, as some companies have elongated crypto decision timelines and summer air travel supply is seeing some constraints. In conjunction, the company is taking prudent expense management steps and lowered its expectations for cash burn in 2H22.</li>
<li>The company continues to invest in its platform with additional hiring and with new partners like VISA. It has been working closely with its existing partners on integration and go-to-market. This includes joint collaboration with partners on training relationship mangers, developing sales collateral, and app launches. It is optimistic about activating some of its previously announced partnerships in 2H22, with increased ramp-up into 2023.</li>
<li>The company formally appointed Karen Alexander as its new Chief Financial Officer earlier this week. Ms. Alexander had been serving as the Interim Chief Financial Officer and had previously joined the company as the Chief Accounting Officer.</li>
<li>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. The company’s 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 $315 million in cash and other highly liquid assets to continue investing and weather the crypto storm; and (6) key partner wins that point to a strong product and the right price.</li>
<li>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.</li>
</ul>
<h3>COMPANY OVERVIEW</h3>
<div></div>
<p>Bakkt was formed in 2018, with a vision to connect the digital economy. Its platform operates at the intersection of cryptocurrency (“crypto”), loyalty and rewards and payments. It is uniquely positioned to enable consumers, brands, and financial institutions to better manage, transact with, and monetize those assets in exciting new ways.</p>
<p>Bakkt’s institutional-grade technology platform is at the core of everything it does. It has thoughtfully built a unique and powerful platform, melding together institutional-grade loyalty services to complement its institutional-grade crypto capabilities.</p>
<p>The Bakkt platform provides end-to-end services for its partners, which includes easily digestible technology services, 24/7 customer support, and marketing playbooks. Bakkt’s customers include consumers, businesses, and institutions.</p>
<p>Bakkt’s crypto-related capabilities to facilitate new assets acquisition and rewards opportunities for their customers. Its loyalty-related capabilities help businesses deepen their relationships with their customers. Bakkt enables institutions to trade crypto using Bitcoin futures contracts that are traded and cleared on ICE and to store Bitcoin and Ether securely in its custody warehouse.</p>
<p>Read all our reports on&nbsp;<a href="https://www.watertowerresearch.com/pages/companies#bakkt" target="_blank" rel="noopener">Bakkt</a>&nbsp;on our website.</p>
<h2>VALUATION</h2>
<h2>Bakkt Trading In Line with Its Crypto and Digital Wallet Peers</h2>
<p>A hallmark of our research at WTR is that we do not offer specific stock recommendations and/or stock price targets. Our purpose is to help educate our readers about a company and some of the factors that we believe can be relevant to their choices about when and if to invest in a particular issue. We do offer data and graphs about how the stock has been valued historically—typically, using conventional metrics—and sometimes we present data and graphs that juxtapose historical valuations among issuers that are believed to be comparable.</p>
<p>Bakkt’s comparables include digital wallet and crypto companies, and other deSPACs. The comps have a median forward P/S that ranges from 1.0x for de-SPACs to 2.5x for digital wallet, while BKKT is trading at 2.9x. BKKT is trading near its 52-week low, roughly in line with its comps.</p>
<p>Figure 1: Bakkt Comp Table</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/291/593/original/image_84396435141660265378722.png?1660265385" class="editor-image img-responsive" data-smartkarma-image-id="291593"></figure>
<div class="content-remarks">
<p>Revenue Growth is for 2022 estimates versus 2021.</p>
<p>Source: YCharts</p>
</div>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>John Roy, PhD, who is the writer of this report, covers the Technology sector for WTR. Mr. Roy, PhD and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS


Revenue grew 60% Y/Y, driven by strong digital asset conversions and loyalty programs. The company had more than $315 million in cash and other highly liquid assets at the end of 2Q22, with guidance for $135-140 million cash burn in 2022, implying more than two years of runway to cash positive. The stock is up more than 18% in early trading after the earnings call.
The company lowered revenue guidance for 2022 from $60­ - 80 million to $57-62 million, as some companies have elongated crypto decision timelines and summer air travel supply is seeing some constraints. In conjunction, the company is taking prudent expense management steps and lowered its expectations for cash burn in 2H22.
The company continues to invest in its platform with additional hiring and with new partners like VISA. It has been working closely with its existing partners on integration and go-to-market. This includes joint collaboration with partners on training relationship mangers, developing sales collateral, and app launches. It is optimistic about activating some of its previously announced partnerships in 2H22, with increased ramp-up into 2023.
The company formally appointed Karen Alexander as its new Chief Financial Officer earlier this week. Ms. Alexander had been serving as the Interim Chief Financial Officer and had previously joined the company as the Chief Accounting Officer.
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. The company’s 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 $315 million in cash and other highly liquid assets to continue investing and weather the crypto storm; and (6) key partner wins that point to a strong product and the right price.
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.

COMPANY OVERVIEW

Bakkt was formed in 2018, with a vision to connect the digital economy. Its platform operates at the intersection of cryptocurrency (“crypto”), loyalty and rewards and payments. It is uniquely positioned to enable consumers, brands, and financial institutions to better manage, transact with, and monetize those assets in exciting new ways.
Bakkt’s institutional-grade technology platform is at the core of everything it does. It has thoughtfully built a unique and powerful platform, melding together institutional-grade loyalty services to complement its institutional-grade crypto capabilities.
The Bakkt platform provides end-to-end services for its partners, which includes easily digestible technology services, 24/7 customer support, and marketing playbooks. Bakkt’s customers include consumers, businesses, and institutions.
Bakkt’s crypto-related capabilities to facilitate new assets acquisition and rewards opportunities for their customers. Its loyalty-related capabilities help businesses deepen their relationships with their customers. Bakkt enables institutions to trade crypto using Bitcoin futures contracts that are traded and cleared on ICE and to store Bitcoin and Ether securely in its custody warehouse.
Read all our reports on&nbsp;Bakkt&nbsp;on our website.
VALUATION
Bakkt Trading In Line with Its Crypto and Digital Wallet Peers
A hallmark of our research at WTR is that we do not offer specific stock recommendations and/or stock price targets. Our purpose is to help educate our readers about a company and some of the factors that we believe can be relevant to their choices about when and if to invest in a particular issue. We do offer data and graphs about how the stock has been valued historically—typically, using conventional metrics—and sometimes we present data and graphs that juxtapose historical valuations among issuers that are believed to be comparable.
Bakkt’s comparables include digital wallet and crypto companies, and other deSPACs. The comps have a median forward P/S that ranges from 1.0x for de-SPACs to 2.5x for digital wallet, while BKKT is trading at 2.9x. BKKT is trading near its 52-week low, roughly in line with its comps.
Figure 1: Bakkt Comp Table


Revenue Growth is for 2022 estimates versus 2021.
Source: YCharts

DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  John Roy, PhD, who is the writer of this report, covers the Technology sector for WTR. Mr. Roy, PhD and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

Strong Revenue Growth of 60% Y/Y Plus Solid Cash of $315 Million Puts Bakkt in a Good Position to Leverage Its B2B2C Model

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

United States

Bakkt Holdings, Inc. operates as a software company. The Company develops digital asset marketplace that enables consumers to buy, sell, store, and spend digital assets. Bakkt Holdings serves customers worldwide.

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Bakkt (BKKT US)

Strong Revenue Growth of 60% Y/Y Plus Solid Cash of $315 Million Puts Bakkt in a Good Position to Leverage Its B2B2C Model

KEY POINTS Revenue grew 60% Y/Y, driven by strong digital asset conversions and loyalty programs. The company had more than $315 million in cash...

Water Tower Research

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...

Water Tower Research

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52-week Range

Market Cap (USDm)

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