I must admit that I don’t spend as much time following the happenings of cryptocurrencies such as Ripple (CCC:XRP) as I probably should.
After all, in an article about Overstock.com (NASDAQ:OSTK) in January 2018, I commented that I thought blockchain was for real.
“I don’t doubt that blockchain technologies are for real. My belief is — not from some specific expertise I might have but rather a common-sense understanding — that anything that makes transactions between interested parties safer and more secure –is worth pursuing,” I wrote in early 2018.
I didn’t think OSTK stock was a smart way to play cryptocurrency.
At the time, it was trading around $78. Today, despite a precipitous decline to below $4 in March, it’s managed to claw its way back to $69 as I write this. Fortunately, for long-time shareholders, Overstock stuck to its e-commerce business model, and the novel coronavirus did the rest.
As InvestorPlace’s Louis Navellier pointed out in mid-November, its third-quarter 2020 sales were $731.7 million, 25% higher than analyst expectations, with a profit of 50 cents, 52 cents higher than the consensus estimate. In other words, it was an out-and-out home run quarter, but enough about Overstock.
This is an article about Ripple, the blockchain payments firm that some say could go public in 2021.
The company announced on Nov. 27 that it was selling one-third of the shares in Moneygram International (NASDAQ:MGI) that it acquired in June 2019 as part of its strategic partnership with the money transfer and payment service.
The question is whether this is good news or bad news for the XRP price. Here’s my quick take on the subject.
It’s Very Good News for Ripple
The June 2019 securities purchase agreement called for Ripple to buy 5.6 million shares of MGI stock at $4.10 each. At the time, Moneygram’s stock was trading around $1.50, so Ripple was paying a major premium. Also, it received 1.7 million warrants to buy 1.7 million shares of Moneygram, also at $4.10 each.
In addition, Ripple provided Moneygram with a $20 million letter of credit that it could draw upon from time to time. Every time it makes a draw, it would issue shares and warrants to Ripple.
“The purchase price per share of Common Stock in an issuance of Common Stock pursuant to any Letter of Credit Draw (a “Common Stock Issuance”) will be the greater of (i) $4.10 and (ii) if the trading price of Common Stock exceeds $4.10 per share as of the close of regular trading on the trading day immediately prior to the date the Company delivers a Draw Notice, the lesser of (a) 150% of the Company’s 30-trading-day volume-weighted average price as of the close of regular trading on the trading day before the date the Company delivers a Draw Notice and (b) $6.40,” the securities purchase agreement stated.
As I write this, MGI is down 4% on the day but still trading close to $7, a level it hasn’t seen consistently since the summer of 2018. More importantly, MGI stock has closed above $4.10 or higher for 30 consecutive days, which means the investment in Moneygram’s already paying off, 17 months into the agreement.
“Ripple is a proud partner in MoneyGram’s digital growth transformation. This is purely a judicious financial decision to realize some gains on Ripple’s MGI [MoneyGram International] investment and is in no way a reflection of the current state of our partnership,” a Ripple spokesperson told CoinDesk.
How Much Has It Made from Moneygram?
Ripple is selling up to four million shares as per its Nov. 27 announcement.
According to its SEC filing, it currently owns or has the right to buy 12.2 million shares, which account for 17% of Moneygram’s stock. Assuming it sells four million shares at $6.50 a share, it will generate $26 million in gross proceeds while still owning 11% of Moneygram’s shares.
“We will remain a significant shareholder in MoneyGram following the sale. [The company is] clearly a leader in the global payments space in over 200 countries and territories. In just over a year, we’ve made incredible progress and look forward to continuing to work alongside MoneyGram to transform cross-border payments,” the Ripple spokesperson said.
The partnership between the two companies is approaching the third anniversary, with both parties clearly benefiting from it.
Moneygram has a $506.2 million market capitalization, which values the remaining shares at $55.7 million.
So, based on an overall investment of $50 million in Moneygram, it has already recouped more than 50% of its investment while working toward a $1 billion market cap. Assuming it gets there by June 2022, it will have recouped its entire $50 million and be sitting on $86 million in gains over 36 months for an annualized total return of slightly less than 40%.
The Bottom Line
As of the end of 2019, Ripple had raised close to $300 million in venture capital funding over 12 rounds according to Crunchbase and is estimated to have a post-money valuation of $10 billion or possibly more.
Ripple’s venture capital fund, which includes its Moneygram investment, raised $50 million in June 2018. The fund’s invested in 15 ventures since the formation of the fund in 2018.
Should you believe that Ripple will replace SWIFT as the preferred network for global payments — already used by Moneygram, American Express (NYSE:AXP), and Santander (NYSE:SAN) — I think it makes sense to consider investing in Ripple should it go public in 2021.
I don’t think there’s any doubt that Ripple’s latest news is good news for the cryptocurrency, the company, and Moneygram.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.