Today Bakkt, a mobile wallet provider and digital asset platform founded in 2018 released its first earnings as a public company. The firm began trading on the New York Stock Exchange (NYSE) on October 18th following a SPAC merger with VPC Impact Acquisition Holdings (VIH).
Casual observers may find the results underwhelming. After all, the company, whose backers include NYSE parent firm Intercontinental Exchange, and which had completed a $300 million Series B round of funding in March 2020 brought in just $9.1 million in revenue this quarter.
Granted it is up 7% from Q2 and 38% year over year, and the company reports having 1.7 million transacting accounts, but the firm still had a net loss of $28.8 million. In contrast, cryptocurrency exchange Coinbase earned $1.2 billion in revenue and Square’s Cash App, which offers an easy way for users to buy bitcoin, brought in $1.87 billion in crypto revenue and $42 million in gross profit. PayPal, which offers a simple interface for users to buy and make purchases with Bitcoin, Ethereum, Litecoin, and Bitcoin cash opened 13.3 million accounts last quarter despite disappointing revenues.
However, according to Bakkt CEO Gavin Michael, who spoke exclusively to Forbes prior to the earnings release, this is all part of his plan for the company that has evolved from primarily being a bitcoin custodian and futures exchange to a much more comprehensive platform. Michael, who previously served as a technology executive for banks such as Citi, JPMorgan and Lloyds, intends for Bakkt to become the hub of an extensive ecosystem of business to business and consumer retail activity, with loyalty points and digital assets such as Bitcoin and Ethereum in the center of it all. “We see businesses leveraging our platform to drive loyalty, and to deepen their customer relationships…they\’re also able to innovate with crypto services and crypto rewards, appealing to a growing segment of digitally savvy customers.”
The company’s merger also brought in a war chest of more than $480 million to use for future partnerships and acquisitions.
Also not reflected in these numbers is the steady stream of brand-name partnerships brought onto the platform, starting with Starbucks this past March and growing to include Choice Hotels, Fiserv, Finastra, Wells Fargo, United Airlines and Mastercard. These tie-ups are intended to do everything from helping community banks and credit union clients invest in crypto to allow merchants on the Mastercard network to offer crypto rewards to users. “We enable these companies to really deliver consumer choice, [offer] convenience with alternate payment methods that allow consumers to spend the value of their digital assets across merchants and enable businesses to gain access to this increased spending power.”
The market responded particularly well to the Mastercard partnership, announced on October 25th. The firm’s stock rose 400% in a week. It has since surrendered over half of those gains, but it remains up over 160% since the merger was finalized.
In addition, the firm is looking to onboard more digital assets, though Michael says that given the platform’s comparatively conservative nature compared to traditional cryptocurrency exchanges, “It’s fair to say that we are probably a platform that will have several, rather than several 100.” Regarding stablecoins and central bank digital currencies (CBDCs), which are increasingly becoming a focal point for regulators and entwined in global commerce and trading, Michael noted “We\’re obviously watching closely what happens with stablecoins and CBDCs, because we\’re an obvious choice, particularly with the partners that we\’re working with…to really bring them to life.” Bakkt does not support any at this time.
With those integrations likely to wait until 2022 at the earliest, Q4 is shaping up to be an early test for Bakkt’s future. Unlike exchanges such as Coinbase, whose fortunes are highly dependent on the volatile nature of cryptocurrency prices to drive trading fees, Bakkt is more dependent upon retail spending to facilitate user growth and engagement on the platform. Q42020 was its most lucrative from a revenue standpoint in the company’s brief history, which Michael attributed in the interview to the seasonality of retail commercial activity, stating that he expects a similar trend again this year.
However, this trend could be upended, to some degree, by today’s challenging economic climate. Already retail establishments are reporting issues finding temporary staff for the holiday season, and October’s inflation numbers, which saw a 6.2% increase from a year ago, the highest jump in 31 years, may limit customer purchasing power over the next couple of months. More worrying is a growing belief among consumers and policymakers that inflation remains stickier than they would like, even if they still believe it is transitory.
That said, the silver lining could be that two industry segments not experiencing massive inflation are travel and lodging, which Bakkt supports through its partnerships with United Airlines and Choice Hotels. Airline fares actually fell 0.7% on the month and is down 4.6% year on year. The index for lodging away from home increased just 1.4%. As more of the world becomes vaccinated, travel restrictions loosen, and cross-border commerce recovers to pre-pandemic levels, Bakkt could see more engagement with its platform.
One final challenge will be convincing clients to part with their bitcoin and ethereum in exchange for goods and services. Both cryptocurrencies, which each hit new all-time highs on November 10th of $68,721 and $4,851 respectively, are seeing reductions in their circulating supply. This trend is due to multiple factors, pre-eminent among them is the fear of someone finding in the future that they bought a $1000 cup of coffee in 2021 when they needed a quick boost. Of course, when asked about this challenge, Michael and the team are quick to point out that Bakkt is not necessarily a crypto platform, but a universal ecosystem for all digital assets.