Bakkt: A Hot IPO Turns Cold in a Hurry

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Cryptocurrency exchange Bakkt Holdings (NYSE:BKKT) was a hot IPO in October. In December, it’s as cold as ice. BKKT stock has plummeted nearly 70% in the past month and a half.

crypto stocks: a digital representation of a bitcoin surrounded by several other altcoins forming a circular shape
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Bakkt’s majority owner is Intercontinental Exchange (NYSE:ICE), which owns the New York Stock Exchange. The idea was to link the worlds of crypto, loyalty points and physical retail, in one digital wallet. It’s great in theory, but seemingly not so easy in practice.

Bakkt launched its digital wallet in March. By the end of September, it had over 1 billion points and other loyalty rewards stored in its marketplace.

The company released its first earnings report since going public on Nov. 12. Revenue for the third quarter was up 38% year over year. However, it totaled just $9.1 million. What’s more, expenses rose 60% over the same quarter a year ago.

Bakkt Falling in Tandem With Crypto

When BKKT stock completed its reverse merger with special purpose acquisition company VPC Impact Acquisition Holdings on Oct. 18, Bitcoin (CCC:BTC-USD) was trading above $60,000 and rising. Currently, bitcoin is trading around $49,000. And most other altcoins have followed it lower.

Bakkt bills itself as a “digital assets marketplace.” Management expects to grow its network from around 100,000 users now to more than 32 million users in five years. To this end, it has formed partnerships with Alphabet (NASDAQ:GOOG), Mastercard (NYSE:MA) and others. As I wrote in October, these are vital endorsements, bringing Bakkt into the mainstream of transaction processing.

A May survey from PYMNTS showed that nearly 12% of consumers held cryptocurrency. More than half of those consumers had used it to make purchases, usually for less than $100. Connecting unused loyalty points with the crypto market is an easy on-ramp to owning crypto, and Bakkt CEO Gavin Michael believed consumers will eventually “pay with anything.”

Anything or Nothing?

I briefly advised a failed start-up like Bakkt in the late 1990s. Bakkt has already blown past hurdles we couldn’t cross thanks to cryptocurrency and the sponsorship of ICE. The problem is translating interest into use and valuing that use.

Cryptocurrencies in this case act as a bridge between Starbucks (NASDAQ:SBUX) rewards and Choice Hotel rooms. Bakkt also turns Choice Privileges and Wyndham Rewards points into cash. In practice, it means any loyalty or reward program becomes a cryptocurrency.

InvestorPlace’s Louis Navellier is bullish on Bakkt. He thinks it could slingshot to $50 a share, stating:

Through its secure and regulated platform, Bakkt taps into more than $1.6 trillion worth of digital assets across cryptocurrencies, gaming assets, gift cards, rewards/loyalty points, and more. And unlike some other crypto-centered platforms, Bakkt has significant offerings for institutional investors.

As more cryptocurrencies are added to the system, like Ethereum (CCC:ETH-USD), the value and amount of these exchanges will grow.

This is great in theory. The question is whether Bakkt can profitably handle the minuscule values of all these assets, converting them profitably for both itself and users.

Given its valuation of under $1 billion, investors won’t get much help deciding. Only one analyst follows Bakkt, with a 2022 revenue estimate of $110.5 million.  That’s more than triple the estimate for 2021 revenue, but you’re still paying 7 times next year’s revenue for the stock. In a world that now prefers value to growth, that may not be good enough.

The Bottom Line on BKKT Stock

As a market for digital currency, BKKT stock is as speculative as anything it holds.

Bakkt needs crypto assets to maintain their value to spur consumer interest. Turning miles into bitcoin sounds great if bitcoin’s value is rising. It’s not so great if bitcoin’s value is falling.

Even if the company finds initial success, I expect rocky times ahead as consumers question exchange rates on the Bakkt marketplace. If you’re interested in BKKT stock, think of your investment as venture funding. Expect to hold shares for several years.

On the date of publication, Dana Blankenhorn held no positions in any company mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


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