Bakkt Holdings, Inc. (BKKT, Financial) is a company operating in the multitrillion-dollar digital assets market which includes cryptocurrencies, loyalty and rewards points, gift cards, in-game assets and non-fungible tokens (NFTs) which are otherwise unique and are not interchangeable. The company got listed through a special purpose acquisition company merger with VPC Impact Acquisition Holdings a few months ago and attained meme stock status when retail traders initiated a buying frenzy shortly after it went public.
Management is looking to provide individuals, businesses and financial institutions new ways to participate in the digital economy by making digital assets more accessible and attempting to boost their liquidity. This proposition, coupled with over 500,000 early-access participants, access to 250 merchant partners and nearly 100 institutional clients has attracted even long-term investors to the stock. Let's take a look at the company’s recent developments and evaluate whether it could be a value prospect now that the price has dropped to below the initial listing price.
Company overview
Bakkt Holdings operates a digital asset marketplace where users can purchase, sell, store and spend digital assets. Its retail platform that is currently available through the Bakkt application aims to increase consumer spending and strengthen loyalty programs, benefiting all key stakeholders in the Bakkt payments and digital assets ecosystem.
The company recently announced that 1 billion points and miles had been linked on the Bakkt app, marking a significant milestone since the program's public launch in March 2021. Customers are taking advantage of the functionality to track and leverage their digital assets in a number of ways, including the ability to convert their rewards to cash and buy cryptocurrency, gift cards, or even spend on everyday purchases, given the ability to load loyalty points from select hotels, airlines and retailers into the Bakkt app.
The company is spearheaded by CEO Gavin Michael and is headquartered in Alpharetta, Georgia.
Expanding the crypto offering
Bakkt has been looking to provide flexible opportunities for users to enjoy their digital assets, and to that end, they added Ethereum in order to bring a popular and growing cryptocurrency to their roster. Ethereum has increased in popularity over the past few years and now ranks second only to Bitcoin in terms of market share.
Bakkt supports the flow of digital commerce by giving consumers more chances to use their digital assets. Currently, the company provides customers access to only the two major cryptocurrencies, Bitcoin and Ethereum, representing more than half of the entire market value of all cryptocurrencies. However, more could be added as crypto becomes more widely accepted.
Partnering with Google
Bakkt has partnered with Alphabet's (GOOG, Financial)(GOOGL, Financial) Google to expand the reach and usefulness of digital assets in response to rapidly changing consumer demand and preferences. As a result of the partnership, Bakkt users can use their virtual Bakkt Visa Debit Card with Google Pay to buy everyday products and services online, in-store, or anywhere Google Pay is accepted. For these transactions to proceed, digital assets such as Bitcoin will be converted to fiat currency.
Additionally, the company has chosen Google Cloud as its preferred cloud provider and will advertise its Google Cloud-powered solutions to prominent retailers and merchants in the U.S.
Bakkt's management also intends to add additional analytics to its platform, as well as artificial intelligence (AI), machine learning (ML) and geolocation capabilitities, in order to extract deep, location-aware business insights using Google Cloud's industry-leading technologies. These insights will provide Bakkt customers with more loyalty redemption possibilities, as well as useful consumer activity patterns powered by Google Cloud infrastructure for Bakkt partners.
Moreover, collaborating with Google Cloud will help them to continue building a best-in-class, innovative platform that can unquestionably scale to meet the needs of millions of people. Google Cloud has been a major factor in location-tracking and other personal data collection for digital commerce, enabling numerous shops and merchants to increase their sales, which will benefit Bakkt in the long term.
Partnering with Choice Hotels
Bakkt Marketplace has partnered with Choice Hotels International, Inc. (CHH, Financial) to extend the usability of the company's rewards program, Choice Privileges, through the Bakkt app. Choice Privileges members may now convert their reward points to cash, which they can then use to buy Bitcoin, send gifts or use anywhere Apple Pay or Google Pay is accepted online or in-store.
Choice Privileges members can earn points at over 7,100 Choice hotels in over 40 countries. By linking a Choice Privileges account to the Bakkt App, members can earn 500 extra points, as well as a 1,000-point bonus; the first-time points are redeemed for cash using the Bakkt App. Bakkt is looking to offer value to consumers by unlocking new redemption prospects for Choice Privileges members to use their rewards points in everyday life or even to buy Bitcoin.
It is an interesting move to attract more users to its platform. Bakkt is clearly looking to strengthen its network to tap into new opportunities for client involvement as the digital asset market continues to grow and evolve. Like Choice Hotels, there are plenty of major brands out there with loyalty points systems and programs and Bakkt is looking to expand into this domain by providing additional alternatives and flexibility to the loyalty members and grow their marketplace. Whether this move will pay off or not remains to be seen.
Final thoughts
After its SPAC listing, Bakkt’s stock price soared right away. This was a fairly uncommon development for an SPAC combination, leading me to believe it falls under the "meme stock" category. However, the correction in the stock has been strong since November 2021 after its initial post-combination spike. This has been due to multiple factors, including post-merger volatility, weaker-than-expected third-quarter earnings and cryptocurrency market price volatility late in the month. Even the announcement of its platform enabling Ethereum trading was insufficient to propel the company's stock price.
Bakkt released its fiscal third-quarter results recently, reporting sales of $9.14 million, a 38% year-over-year increase which came at the cost of a net loss of $28.8 million. The company’s trailing 12-month revenue is around $35.2 million with an operating loss of around $92.92 million, clearly indicating that it is not fundamentally sound. Even after the correction, it is trading at an enterprise-value-to-revenue multiple of 8.37, which appears elevated given the future uncertainty associated with its business. I believe that the company is a highly risky investment and should ideally be avoided by investors until there is some visible margin expansion.
