After the market closed yesterday (11/14/24), DeFi Technologies (OTC:DEFTF) reported 3Q24 earnings results. On an IFRS basis, DEFTF reported 3Q24 EPS of $0.05 – matching our $0.05 estimate. Net income totaled $18.4 million for the quarter versus our $20.0 million forecast (Exhibit 1). Relative to our model, operating trends moderately lagged our forecasts.
After updating our model for 3Q24 results, we are leaving our 2024 EPS estimate unchanged at $0.27. Despite meaningfully lower AUM as of 9/30/24 ($571 million versus our prior $623 million forecast), crypto markets have sharply rebounded following the elections (our back-of-the-envelope math suggests Valour’s AUM are up a weighted-average 30%+ since September 30, 2024, based solely on market depreciation), thereby pushing up QTD asset levels (and related management/staking/lending fees). Our model now calls for total revenues of $142 million for 2024 – consistent with management’s updated guidance.
That said, we are taking down our 2025 forecast from $0.50 to $0.40. Our revision primarily reflects a slightly flatter revenue growth trajectory and meaningfully higher operating expense assumptions (mostly share-based payments and G&A costs), partially offset by lower shares outstanding. That said, we still forecast DEFTF’s operating margin to approach 70% looking out to next year, up from 63% in 2024 reflecting rising operating leverage.
Our unchanged $4.00 price target reinforces our continued bullishness on the stock. We continue to believe DeFi Technologies is uniquely positioned to capitalize on the burgeoning digital assets ecosystem, with a diversified and differentiated portfolio of asset management, trading, infrastructure, venture capital, and research businesses. While the stock has meaningfully outperformed thus far this year, we see further room to run, as awareness and appreciation of the company’s unique business model, durable competitive advantages, considerable growth prospects, and unsustainable valuation disconnect continue to build. On top of that, upward revaluation catalysts potentially include uplisting the stock to a senior U.S. exchange, and/or partnering with a larger firm looking to acquire a foothold in crypto asset management or consolidate market share, particularly in Europe.
Furthermore, at just 5.0x our revised 2025 EPS estimates of $0.40, DEFTF continues to trade at a wide discount to other asset managers with meaningful crypto ETF offerings. While we recognize most peers are significantly larger and more mature, with considerable infrastructure, resource, and financial advantages, DEFTF maintains a sizeable advantage in terms of projected growth, thereby justifying a comparable (if not higher) P/E multiple, in our minds. We note that applying a seemingly reasonable 15x P/E multiple to our 2025 EPS estimate translates into a stock price of $6.
Following our review of 3Q24 results, we highlight the following key takeaways:
1. Evolving business model: In October, DEFTF completed the previously announced acquisition of Stillman Digital, a leading digital asset liquidity provider offering trade execution, settlement, and technology solutions. Terms of the transaction include the issuance of 2.5 million DEFTF shares (of which 1.0 million shares are subject to lock-up schedules). The transaction further augments and diversifies DEFTF’s customer base and trading revenue opportunities (DeFi Alpha generated $14.7 million in 3Q24 following $82.0 million in 2Q24). Moreover, management recently announced the launches of SolFi Technologies and CoreFi Strategy – companies focused on providing access/exposure to the Solana and BTCfi ecosystems, respectively.
2. Continuing to build out asset management capabilities: While 3Q24 ending AUM of $571 million fell short of our $623 million forecast (mostly a function of broader crypto market weakness since we last marked-to-market our model), assets have sharply rebounded thus far in 4Q24, with AUM reaching $785 million as of November 13, 2024, reflecting strong market gains combined with ongoing net inflows. Management remains focused on broadening Valour’s footprint – the firm currently managing 28 ETPs, with plans to offer 23 new products over the next few weeks and ~50 more by the end of 2025. More recent product launches include the Valour Sui (SUI) ETP in Sweden and the Valour Bittensor (TAO) SEK ETP in the Nordics. Looking ahead, ongoing product development likely continues to center on innovative/differentiated strategies leveraging Valour’s exchange partnerships, with quicker uptakes reflecting first-mover advantages. Turning to distribution, senior executives remain focused on obtaining regulatory approvals to enter markets across Africa, the Middle East, and Asia to capitalize on strong crypto adoption/demand trends. Furthermore, DEFTF recently announced plans to partner with Professional Capital Management Partners to launch ETFs here in the U.S.
3. Strengthening balance sheet: Management is increasingly tapping rising profitability to strengthen the company’s financial position and build treasury reserve digital assets to mitigate the effects of inflation and generate higher yields on excess liquidity. More specifically, DEFTF held $18.8 million of cash and USDT on the balance sheet along with $26.9 million of treasury reserve digital assets. Following the recent debt payment, DEFTF is essentially debt-free, with the remaining $6 million loan balance with Genesis Global Capital likely to be resolved in relatively short order. From a capital management standpoint, senior executives seemingly remain committed to share repurchases, with the Board likely to consider instituting a dividend at some point down the road.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives quarterly payments totaling a maximum fee of up to $40,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.
