Galaxy Digital to buy BitGo in $1.2B crypto deal as Square reports Q1 earnings
As bitcoin, ethereum and other cryptocurrencies get increasing attention from investors, Wall Street and its traditional banks continue to adjust to the shift. Catch up on this week's top stories highlighting the intersection of these old guard and new school areas of finance with this recap compiled by The Fly.
GALAXY DIGITAL TO ACQUIRE BITGO: Galaxy Digital Holdings announced Wednesday that it has agreed to acquire BitGo, an independent digital assets infrastructure provider. The company said, “The acquisition will position Galaxy Digital as a leading global full-service platform for institutions seeking access to the crypto economy, offering an unparalleled breadth of industry-leading products and services at scale.” BitGo is a custody provider with over $40B of assets under custody, serving over 150 exchanges and over 400 institutional clients. BitGo processes over 30B monthly transactions, supports the custody of more than 400 coins and tokens and provides clients with the most comprehensive insurance available in the market. Under the terms of the merger agreement, the consideration to BitGo shareholders will consist of 33.8M of newly issued shares of Galaxy Digital common stock and $265M in cash, subject to certain adjustments and deferred purchase considerations, implying an aggregate transaction value of approximately $1.2B based on Galaxy Digital's closing share price on May 4, 2021. Galaxy Digital will use its balance sheet to fund the cash consideration, a significant portion of which will be deferred up to 12 months post-close. Additionally, Galaxy Digital will issue incremental shares of its common stock to BitGo's shareholders in exchange for BitGo's net digital assets at close. BitGo shareholders will own approximately 10% of the pro forma company. Galaxy Digital to retain substantially all current BitGo employees and enter into employment agreements with key members of the management team. Upon closing Mike Belshe will join as Deputy CEO of Galaxy Digital and will become a member of the company's Board of Directors. The transaction has been approved by the boards of directors of both Galaxy Digital and BitGo. The acquisition is expected to close in the fourth quarter of 2021.
SQUARE REPORTS EARNINGS:On Thursday, Square (SQ) reported first quarter adjusted earnings per share of 41c on a revenue of $5.06B, which compared to analyst estimates of 16c and $3.36B. Excluding bitcoin, total net revenue in the first quarter was $1.55B. Square said: "In February 2021, we invested $170M in bitcoin as we believe cryptocurrencies are an instrument of economic empowerment, which aligns with the company's purpose. We expect to hold this investment for the long term."
Following the report, Credit Suisse analyst Timothy Chiodo raised the firm's price target on Square to $300 from $290 and kept an Outperform rating on the shares. Both ecosystems have scaled above expectations, with Seller showing the signs of last year's strong underlying cohort additions and Cash App elevating to a larger base to carry into Q3 and Q4, both of which suggest stronger exit rates than previously expected heading into 2022, Chiodo said. Meanwhile, Morgan Stanley analyst James Faucette raised the firm's price target on Square to $254 from $245 and kept an Equal Weight rating on the shares. The Seller recovery is "well underway" and while stimulus and tax refund season brought consumers to Cash App, engagement remains high, Faucette said. Square's "robust" engagement metrics "keep the Super App ambitions within reach," added the analyst. Additionally, JPMorgan analyst Tien-tsin Huang raised the firm's price target on Square to $300 from $250 and kept an Overweight rating on the shares. The company posted "impressive acceleration" in both Seller and Cash App in Q1, Huang said, and he expects Square to take the "transient benefits" from stimulus and economies re-opening to "habituate” usage of its increasing array of modern products.
ANALYST VIEWS ON COINBASE: On Tuesday, Keefe Bruyette analyst Kyle Voigt initiated coverage of Coinbase Global (COIN) with a Market Perform rating and $325 price target. Meanwhile, Mizuho analyst Dan Dolev raised the firm's price target on Coinbase to $315 from $285 and kept a Neutral rating on the shares. Crypto "exuberance" drove elevated trading volumes on the Coinbase platform in April, nearly matching Q1's record levels, Dolev said. If this trend continues, the company's Q2 revenue may top consensus estimates by as much as 35%, added the analyst. Despite his caution over the medium-term, he raised estimates "amid strong crypto volumes."
ANALYST VIEWS ON MICROSTRATEGY: Citi analyst Tyler Radke raised the firm's price target on MicroStrategy (MSTR) on Monday to $450 from $325 and kept a Sell rating on the shares. Operationally, MicroStrategy delivered one of the strongest Q1s in recent memory with license revenue growing 69% and total revenue growth near 10% year-over-year, Radke said. However, Q1 is really a "non-event" given the outsized valuation from bitcoin versus the core business, said the analyst. Radke believes the implied 46% premium embedded in MicroStrategy's stock "could be at risk as alternative Bitcoin investment vehicles arise." William Blair analyst Bhavan Suri initiated coverage of MicroStrategy on Tuesday with an Outperform rating and no price target. The analyst said MicroStrategy is a leading enterprise analytics software vendor with substantial bitcoin holdings. The shares will be driven by revenue growth, margin expansion and the continued appreciation of bitcoin price, Suri said. The analyst sees a favorable risk/reward tradeoff over the next two years and views MicroStrategy as a "unique asset that provides investors with exposure to the cryptocurrency market."
JPM CEO STILL AGAINST BITCOIN: Despite a report that JPMorgan (JPM) will offer a bitcoin fund for wealthy clients, the bank's chairman and CEO Jamie Dimon is personally still skeptical of the digital currency, CNBC's Taylor Locke reported Tuesday. "I'm not a bitcoin supporter," Dimon said during The Wall Street Journal CEO Council summit. "I don't care about bitcoin. I have no interest in it…On the other hand, clients are interested, and I don't tell clients what to do," he said. "Blockchain is real. We use it," Dimon added. "But people have to remember that a currency is supported by the taxing authority of a country, the rule of law, a central bank."
CRYPTO STOCK PLAYS: Cryptocurrency revenues have been pointed to as reasons to be bullish on Advanced Micro Devices (AMD) and Nvidia (NVDA) in select research. Overstock (OSTK), Ideanomics (IDEX), Riot Blockchain (RIOT), Pareteum (TEUM) and SRAX (SRAX) are other stocks that have been touted, or promoted themselves, as a way to play the crypto theme.
PRICE ACTION: As of time of writing, bitcoin dropped roughly 2% this week at $57,122 in U.S. dollars, according to TradeBlock.