XO Swap's Adoption Will Drive Growth Amid Exchange Revenue Dependence Risks

Key Takeaways

• Expanding partnerships and potential acquisitions drive revenue growth and market presence enhancement for Exodus.
  
• Early adoption of Passkeys Wallet and increased marketing initiatives boost product adoption and engagement, fueling potential revenue growth.
  
• High dependence on exchange aggregation and crypto market cycles, coupled with external reliance and competition, poses significant risks to revenue stability and market share.

Catalysts

Operates as a financial technology for blockchain and digital asset industry in the United States.

• The strong performance and growing adoption of the XO Swap product, which contributed 12% of Q4 revenue, indicate a significant driver of future revenue growth. The ability of XO Swap to partner with industry players like Ledger and Magic Eden positions it as a key growth component impacting future revenue streams.
  
• The launch of Passkeys Wallet, with its strong early adoption and user experience improvements, suggests potential for continued user growth and engagement, which are likely to drive higher revenue and possibly improve net margins through economies of scale.
  
• Increased marketing initiatives, such as being a co-host of the first Crypto Ball and campaigns to raise awareness among policymakers, are expected to foster broader adoption of Exodus’ products. This can lead to revenue growth as product adoption increases.
  
• The company's strategy to leverage partnerships and potentially engage in acquisitions suggests a forward-looking approach to expanding its market presence and user base. This could positively impact revenue and earnings growth.
  
• The company's uplisting to the NYSE American Exchange enhances its visibility and liquidity, possibly attracting more investors and enabling access to capital to support further growth initiatives, impacting future earnings potential.

Exodus Movement Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Exodus Movement's revenue will grow by 25.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 97.1% today to 60.5% in 3 years time.
• Analysts expect earnings to reach $137.3 million (and earnings per share of $3.3) by about March 2028, up from $113.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.7x on those 2028 earnings, up from 6.1x today. This future PE is lower than the current PE for the US Software industry at 30.6x.
• 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 7.33%, as per the Simply Wall St company report.

Exodus Movement Future Earnings Per Share Growth

Risks

• Exodus Movement’s revenue is highly dependent on exchange aggregation, forming 92% of total revenue in 2024. This revenue concentration poses a risk if there are disruptions or increased competition in the exchange aggregation space, potentially impacting future revenue stability.
  
• The company's financial performance is closely tied to cryptocurrency market cycles, which are known for their high volatility. Such volatility may affect user activity and revenue generation, impacting earnings stability.
  
• Significant legal and accounting fees were incurred due to uplisting to the NYSE American Exchange, and similar future initiatives may further increase operational expenses, affecting net margins.
  
• Reliance on external third-party API providers for revenue generation means that any downtime, security issues, or unfavorable changes in terms from these providers could adversely affect Exodus' earnings and financial health.
  
• The competitive landscape in the crypto wallet and exchange space is intensifying, and any failure to continuously innovate or meet consumer needs might reduce Exodus' market share, negatively impacting future revenues and earnings potential.

Valuation

• The analysts have a consensus price target of $61.0 for Exodus Movement 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 $72.0, and the most bearish reporting a price target of just $50.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $227.1 million, earnings will come to $137.3 million, and it would be trading on a PE ratio of 18.7x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $24.5, the analyst price target of $61.0 is 59.8% higher. Despite analysts expecting the underlying buisness 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.