Regulatory Shakeout And International Expansion Will Strengthen Long-Term Position In Crypto ATM Market

Catalysts

About Bitcoin Depot

Bitcoin Depot operates one of the largest networks of Bitcoin ATMs, providing convenient physical access points for consumers to buy digital assets with cash.

What are the underlying business or industry changes driving this perspective?

• Accelerating kiosk deployment and relocation, backed by a large existing inventory and proven sub eight month payback periods, is expected to continue to expand transaction volumes and sustain double digit revenue growth.
• Ongoing regulatory tightening at the state level is likely to force out smaller, noncompliant operators. This may enable Bitcoin Depot, as the most compliant scale player, to capture share and support higher long term earnings power.
• International expansion into markets such as Australia and Hong Kong, along with future jurisdictions without fee or transaction caps, diversifies geographic exposure and provides new growth lanes for revenue and gross profit.
• Strategic M&A, funded by a strengthened balance sheet and additional equity capital, can quickly add productive kiosks and synergies. This can enhance operating leverage and support margin expansion and EBITDA growth.
• Continued optimization of the kiosk footprint, including redeployments away from newly capped markets into higher yielding locations, is intended to protect per kiosk productivity and underpin resilient cash generation and net income.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Bitcoin Depot's revenue will decrease by 10.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 1.4% today to 0.1% in 3 years time.
• Analysts expect earnings to reach $640.2 thousand (and earnings per share of $0.01) by about December 2028, down from $9.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $-89.5 thousand.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 690.0x on those 2028 earnings, up from 11.8x today. This future PE is greater than the current PE for the US Commercial Services industry at 24.9x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Expanding state level regulations that cap transaction sizes or fees across more jurisdictions could structurally limit throughput per kiosk and compress pricing power, leading to slower revenue growth and pressure on net margins over the long term.
• Enhanced compliance requirements such as mandatory ID collection for every transaction and additional protections for seniors may reduce convenience for some users and deter smaller, frequent cash customers, which could weigh on transaction volumes and earnings sustainability.
• Guidance pointing to one of the lowest revenue quarters in several years, driven by regulation, seasonality and compliance changes, suggests that the current growth and profitability profile may be volatile and vulnerable to further downside, which could undermine long term earnings trajectories.
• Rising debt levels from term loans and profit sharing liabilities, alongside the need for additional equity raises to fund acquisitions and expansion, could dilute existing shareholders and increase financing costs, limiting future net income growth and reducing the attractiveness of the equity.
• Regulatory barriers in key strategic markets such as the low likelihood of obtaining a New York BitLicense and the finite scale of newer markets like Hong Kong may constrain the company’s ability to offset domestic regulatory headwinds, limiting long term revenue diversification and margin expansion.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $3.93 for Bitcoin Depot based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.0, and the most bearish reporting a price target of just $2.3.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $460.7 million, earnings will come to $640.2 thousand, and it would be trading on a PE ratio of 690.0x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $1.48, the analyst price target of $3.93 is 62.4% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.