Voyager Digital Stock Plunged By Nearly 25%: Here’s Why

On March 30, 2022, Voyager Digital (OTCQX:VYGVF) disclosed that it received an order from eight states against its cryptocurrency products. VYGVF plunged by around 25% on the day. Markets punished the stock because of the new uncertainties surrounding the company’s addressable market size, unknown settlement costs ahead, and risks of more states restricting Voyager’s crypto platform.

What investors should do next now depends primarily on the company’s ability to contest claims that Voyager is violating certain terms. Moreover, investors need to weigh the company’s strong fiscal second quarter results against the latest developments.

Cease and Desist Orders Received

Certain state securities divisions are questioning “Voyager Earn Accounts.” State securities divisions in Indiana, Kentucky, New Jersey, and Oklahoma are members of a multistate working group of North American Securities Administrators Association. In addition, Alabama, Texas, Vermont, and Washington have a cease and desist order against Voyager. Those eight states maintain that Voyager Digital offered and sold securities or investment contracts with Voyager Earn Accounts. Since they are unregistered with those states, Voyager cannot continue offering new Voyager Earn Accounts. Furthermore, the company cannot accept more deposits from customers in those locations.

Voyager said, “three of these orders disclose civil penalties that the applicable state intends to seek upon resolution.” The company is asking for clarification on how and when its violations began, how they will calculate the alleged violations and its due process rights.

Concerning the effective date, Voyager would like to see those state orders will have a transition period before it becomes effective.

Legal Defense

Voyager must argue that Voyager Earn Accounts and Earn Program are not securities. However, it is open to interpreting the regulation to ensure it previously complied with it. If those states agree to levy a small fine, Voyager may cover the fee in two ways. First, it may use some of its existing cash of $143.4 million to pay the fine. But if the fine is more than Voyager’s cash on hand, the company will need to issue shares to raise cash. This will dilute shareholders.

If the states seek too high a penalty, the company may end its business in those states. In the short-term period, Voyager would benefit as customers liquidate their accounts. It would briefly generate more customer transaction volumes, lifting Voyager’s revenue. VYGVF may stage a relief rally with the uncertainties removed. In that scenario, the stock could trade back to around $10.00 a share. This is the price at which the stock found support in October 2021 and January 2022:

The company posted revenue of $164.8 million in the last quarter, up by 4400% from the year before. Applying 1.5 times multiple in a five-year discounted cash flow EBITDA exit model, VYGVF stock is worth around $8.00:

Metrics	Range	Conclusion
Discount Rate	8.0% – 7.0%	7.50%
Terminal EBITDA Multiple	0.5x – 2.0x	1.5x
Fair Value	$6.25 – $9.45	$8.32

Model from finbox

Voyager would need to grow revenue by at least 50% annually through the fiscal year 2026:

(USD in millions)		Input Projections
Fiscal Years Ending	21-Jun	22-Jun	23-Jun	24-Jun	25-Jun	26-Jun
Revenue	175	263	394	591	886	1,329
% Growth	15122.30%	50.00%	50.00%	50.00%	50.00%	50.00%
EBITDA	42	39	138	207	310	465
% of Revenue	23.70%	15.00%	35.00%	35.00%	35.00%	35.00%

Model from finbox

Cryptocurrency Platform Opportunity

Investors may speculate on Voyager stock now that shares are at a 52-week low. In the last several quarters, the company consistently reported strong earnings. Moreover, the company has no debt.

In the last quarter, Voyager reported its verified user count is now over 3.2 million as of Dec. 31, 2021. The firm has nearly $6 billion in assets. Unfortunately, after every strong quarterly report, the stock would consistently fall. Conversely, the S&P 500 (SPY) tested the 4200 low three times in the last two months. That set up a rally for the index to return 15.74% in the last year.

Nasdaq’s correction also ended in early March. The technology-heavy industry rose by 7.5% in the last month. Most importantly, Bitcoin (BTC-USD) prices bottomed at $35,000 in January 2022. It closed at around $47,240 at the time of writing. Rising cryptocurrency prices, especially for Bitcoin and Ethereum (OTCQX:ETHE), are positive catalysts for crypto platforms. Voyager and Coinbase (COIN) benefit from increased transaction volumes when crypto prices rise sharply.

Risks

The upside in Voyager Digital rose substantially after the company reported strong revenue generation. Market participants are reacting to the cease and desist order instead. The short-term over-reaction creates a good opportunity for cryptocurrency investors.

Markets may have trouble shaking off worries about the case against Voyager. The company may not have enough cash to pay the fine. Any stock issuance is a direct penalty to existing shareholders due to dilution. The risk is that amid turbulent stock markets, fearful investors may sell Voyager stock to avoid further losses.

Your Takeaway

Cryptocurrency investors should hold crypto, crypto platforms, and crypto miners. Voyager’s platform is attractive as more customers join. Even if it exited its business in those states, the company’s momentum will not slow meaningfully. Investors should take advantage of the stock’s sharp decline to consider its upside potential from here.