Onchain Finance Transition Faces Regulatory And Profitability Hurdles Yet Long Term Potential Remains

Catalysts

About Gemini Space Station

Gemini Space Station operates a regulated crypto and onchain finance platform that integrates exchange trading, credit cards and wallet services into a single emerging financial super app.

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

• Although global financial markets are gradually moving on chain and Gemini is expanding under clear regulatory regimes in Europe, Australia and Singapore, delays or reversals in licensing decisions and evolving compliance requirements could slow new market launches and temper the trajectory of transaction revenue growth.
• While rising adoption of stablecoins and tokenized assets positions Gemini to capture more everyday and institutional use cases, sustained volatility in underlying crypto prices and uncertain timelines for broader tokenization could limit the scale and consistency of spot and derivatives trading revenue.
• Although the Gemini Credit Card has become a powerful acquisition engine with rapidly growing receivables and strong early loss performance, intensified competition in crypto reward cards and potential deterioration in consumer credit cycles could pressure interchange yields and net margins from the card portfolio.
• While self-custody and onchain engagement via Gemini Wallet and native staking infrastructure can deepen user relationships and increase recurring services revenue, technical complexity, security risks and shifting regulatory views on staking may constrain user adoption and compress staking driven earnings.
• Although Gemini’s integrated super app vision and investments in prediction markets, tokenized stocks and multichain support could diversify and scale high margin fee streams over time, the upfront technology, marketing and stock based compensation required to build and defend this platform may outpace near term revenue growth and delay operating margin expansion.

Assumptions

This narrative explores a more pessimistic perspective on Gemini Space Station compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Gemini Space Station's revenue will grow by 57.2% annually over the next 3 years.
• The bearish analysts are not forecasting that Gemini Space Station will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Gemini Space Station's profit margin will increase from -288.6% to the average US Capital Markets industry of 26.0% in 3 years.
• If Gemini Space Station's profit margin were to converge on the industry average, you could expect earnings to reach $164.0 million (and earnings per share of $1.14) by about December 2028, up from $-469.0 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.4x on those 2028 earnings, up from -3.3x today. This future PE is lower than the current PE for the US Capital Markets industry at 25.4x.
• The bearish 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 9.65%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Gemini remains unprofitable with a third quarter net revenue base of $49.8 million against operating expenses of $171.4 million, and with stock based compensation, technology and compliance spend now a structural part of the model, long-term operating leverage and net margins may fail to materialize.
• The strategy leans heavily on a single acquisition engine in the Gemini Credit Card. As card receivables and competition from other crypto reward and fintech cards grow, higher marketing, rewards and credit losses could erode interchange economics and pressure revenue growth and earnings quality.
• Staking and tokenized products are becoming a larger share of services revenue. However, tighter global regulation of staking yields, self custody and tokenized securities could cap user adoption, compress take rates and slow the shift to higher margin recurring revenue.
• Transaction revenue and institutional trading volumes are highly correlated with favorable crypto market conditions. Any prolonged downturn in crypto prices, liquidity or volatility would likely reduce trading volumes, weaken pricing power and weigh on both revenue and earnings.
• The super app vision depends on sustained investment in engineering, security and global licensing. If the onchain finance transition or prediction markets adoption is slower than expected, elevated fixed costs could outpace top line growth and delay any improvement in net margins and overall earnings.

Valuation

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

• The assumed bearish price target for Gemini Space Station is $15.0, which represents up to two standard deviations below the consensus price target of $23.7. This valuation is based on what can be assumed as the expectations of Gemini Space Station's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $631.1 million, earnings will come to $164.0 million, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 9.6%.
  
• Given the current share price of $13.22, the analyst price target of $15.0 is 11.9% higher.
  
• 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.