A cryptocurrency venture launched with fanfare by the parent company of the New York Stock Exchange is fighting to get back on track after a stock-market beatdown.
Shares of Bakkt Holdings Inc. are down 80% since October.
Bakkt is set to report results Thursday for its first quarter as a stand-alone public company. The numbers will shed light on how much progress Bakkt has made toward fulfilling its ambitious targets for revenue and user growth. It laid out the targets in January 2021, when NYSE parent Intercontinental Exchange Inc. unveiled plans to take Bakkt public by merging it with a special-purpose acquisition company.
Bakkt has changed its business model several times since its creation in 2018 and has had four chief executives in as many years. It initially focused on running a platform for trading bitcoin futures. It now focuses on providing technology to banks, credit-card issuers and companies with customer-loyalty programs, such as hotel and restaurant chains. Bakkt’s technology lets such companies integrate crypto, points and gift cards in various ways.
For instance, banks can use Bakkt to let their customers invest in bitcoin and ether. Guests at hotel chains can use Bakkt to swap points for cash or crypto. Bakkt can also be used to make payments using digital currencies.
Skeptics question whether Bakkt has a path to profitability. The company has said it expects to post a pretax loss of $150 million to $155 million for the fourth quarter of 2021, largely due to noncash accounting charges. That came after a $28.8 million loss in the third quarter.
“Bakkt is losing tens of millions of dollars a quarter, and I don’t know how they’ll ever make money," said David Trainer, chief executive of independent investment research firm New Constructs LLC. “They’re just dropping buzzwords in order to appeal to unsuspecting investors."
A Bakkt spokeswoman said the company’s losses reflected aggressive investing to scale its business.
When ICE founded Bakkt, the venture was an unusual foray into crypto by a reputable financial firm. ICE’s pedigree as the owner of the NYSE and global futures exchanges and clearinghouses provided the venture with instant credibility and drew broad attention.
Alpharetta, Ga.-based Bakkt was briefly an investor darling. Its shares soared in late October after Bakkt unveiled a partnership with Mastercard Inc. that could result in debit or credit cards that let people make payments and earn rewards in bitcoin. Following a surge of mentions of Bakkt on social media—often a sign of heavy interest from individual investors—the stock hit $42.52 on Oct. 29, valuing Bakkt at nearly $11 billion.
Since then Bakkt has nosedived. The stock closed Tuesday at $8.40 a share, giving the company a market capitalization of $2.2 billion. Bakkt stock is about 10% below the premerger price of shares of VPC Impact Acquisition Holdings, the SPAC that Bakkt used to go public in a deal that closed in mid-October.
Still, ICE came out as a winner from the SPAC deal. The Atlanta-based exchange operator, which is still the majority owner of Bakkt, booked a $1.4 billion gain from spinning out the venture.
Bakkt is one of a number of money-losing companies that went public via SPAC deals during the past two years, then tumbled in a broad selloff that was especially brutal for richly valued tech startups. SPACs are publicly traded shells that seek to merge with private firms in order to take them public, in an alternative to a standard initial public offering.
In an interview, Bakkt Chief Executive Officer Gavin Michael said the company is well positioned for the long term.
“We are just getting started," said Mr. Michael, a veteran banking executive who became Bakkt’s CEO in January 2021. “We have great partners. We have an excellent team. We have a strategy that is directionally very, very strong."
Companies that have partnerships with Bakkt include Google, Starbucks Corp., United Airlines Holdings Inc. and Wells Fargo & Co.
Bakkt had lofty goals when ICE announced that the venture would go public. In a January 2021 presentation on its SPAC deal, Bakkt projected having nine million users by the end of 2021. By 2025, the company anticipated 31 million users and revenue of $6.6 billion.
The projections assumed the SPAC deal would close in early 2021. It took nine more months to close, delaying Bakkt’s growth efforts. In November, Bakkt said it had more than 1.7 million transacting accounts.
Third-party data show that Bakkt’s smartphone app—once touted as a key part of the company’s strategy—has been losing users. The app had about 157,000 active users in January, down from 353,000 in May, according to data tracker Apptopia. Bakkt’s strategy has lately put less emphasis on the app and more on attracting users through partnerships.
The project that Bakkt initially focused on, bitcoin futures, has largely floundered. Trading volumes in the main Bakkt bitcoin futures contract have slumped to below $10 million a day, from a peak of more than $181 million in March 2021, Bloomberg data show.
“We’re taking a patient approach to building our futures and options market and believe that as institutions become increasingly comfortable interacting with physical bitcoin our market will grow in tandem," the Bakkt spokeswoman said.
This story has been published from a wire agency feed without modifications to the text
