Voyager Digital Ltd CNSX: VYGR


The stock that I hold with the best potential returns within the next 3-4 years is Voyager Digital.  The company is a crypto brokerage helmed by a former executive from E-Trade. 

Voyager’s monthly growth in funded accounts has been about 70%, 60%, 50%, 40% and 30% over the past 5 months.  However, at a current share price of about US$15, the market value is implying that growth has stopped and will never restart.  The company reported around $100 of monthly revenue per account and a 50% operating margin for 1Q21. Following the 50% drawdown in crypto markets since May, which is partially offset by a large increase in volatility, I estimate its 550k funded accounts generate run rate earnings per share of US$0.70-$1.00 as of June 2021.  

To accept today’s implied P/E ratio of ~15-20x as a fair valuation, an investor must believe all of the following: a) Voyager will never achieve its goals of opening its platform outside of the US, b) Voyager’s US growth has finished and c) crypto prices will collapse from their current levels–and remain permanently depressed.

We don’t have to rely on Voyager’s expansion plans to capture any new customers, despite large waitlists in New York, Canada and Europe. This is because there are several secular tailwinds supporting future growth.  If only one of them proves true, then Voyager has considerable profit growth ahead: 

1) Volatility, the lifeblood of a brokerage, is likely to remain elevated due to uncertainty around global central bank indebtedness.

2) Mainstream adoption of crypto is likely to increase, as well as penetration of retail investors’ savings, as it has following each of the previous major crypto sell-offs.

4) Tailwinds from continued decentralization of finance should create upward pressure on defi/altcoin asset prices traded on Voyager.

3) Inflation: Asset prices of bitcoin and other altcoins are likely to increase if global currencies continue to be debased over the long term, which is a near-certainty to many investors.

More concretely, if we simply assume that funded account growth for the next quarter could sum up to a mere 30%, then even a PE of 30x is still conservative, and would justify a share price of at least US$30-$40. (Interactive Brokers, a mature stock brokerage expecting 3% EPS growth, trades at a 21x P/E ratio). Management’s planned uplist to the Toronto Stock Exchange will create access for institutional investors, and the tailwinds above will drive growth that will be the catalyst for a re-rating to an appropriate valuation for this brokerage.

Author: Ian Hunter

Hunter Value Capital

Founder and Portfolio Manager at Hunter Value Capital. Ian is a CFA charter holder and holds an M.B.A. in Global Finance and Business Law from the Stern School of Business at New York University.  Prior to founding HVC, Ian was the Director of Valuations at Savanna, a private equity fund manager in New York City.  Previously he spent a decade on Wall Street in equity research, credit analysis, and corporate lending. | @HunterValueCap |