Summary Bakkt Holdings stock has plummeted 83% year-to-date due to net losses and significant cash burn. To comply with Nasdaq's $1 minimum listing requirement, BKKT executed a 1-for-25 reverse stock split in April. Dilution over the last 1 year at just under 70% and free cash burn of $66 million in the recent quarter highlight the liquidity headwind facing the company. Bakkt Holdings Overview Bakkt Holdings ( BKKT ) has dropped 83% year-to-date on the back of its net losses and cash burn. I flagged this conundrum when I last covered the crypto custody, trading, and rewards firm in 2022. BKKT's performance since would see the firm engineer a 1-for-25 reverse stock split in April to comply with the NYSE's $1 minimum listing requirement. The question now is whether BKKT forms a buy against a materially lower market cap than when it went public via a special purpose acquisition company at a $2.1 billion enterprise value. BKKT's market cap currently stands at $130 million. Data by YCharts The company recorded second-quarter total revenue of $509.9 million , up 46.7% over its year-ago comp, with full-year 2024 revenue expected to be between $2.57 billion to $2.83 billion. However, the bulk of this revenue is generated by BKKT's extremely low-margin crypto services segment, which deals with custody and trading. This segment also drove the year-over-year revenue growth as crypto emerged from its long winter and trading volume and volatility picked up materially. Bakkt Holdings Fiscal 2024 Second Quarter Form 10-Q Subsequent crypto costs at $491.7 million during the second quarter place the operating gross profit of the segment at $18.2 million, a 3.56% gross margin. Hence, BKKT reports an adjusted revenue figure that's essentially net of this segment. This was $14.8 million during the second quarter, up roughly 9% year-over-year but down 13% from the first quarter. This raises the question of the utility of the custody and trading segment to shareholders from a value creation perspective. It's been nearly entirely discounted by the stock market, and the company uses the adjusted figures in its earnings call and presentation . Bakkt Holdings Fiscal 2024 Second Quarter Presentation Losses, Negative Cash Flow, And Potential Sale BKKT's net loss during the second quarter at $35.5 million was an improvement from a loss of $50.5 million a year ago. However, the year-ago period had acquisition-related expenses of $17 million, albeit countered by a $15 million loss in the recent second quarter from a change in the fair value of warrant liability. The core headwind faced by BKKT stems from its negative free cash flow profile and dwindling liquidity base. However, bulls would flag that the company has no real debt on its balance sheet with most of its liabilities driven by its operations, with safeguarding obligations for crypto and customer funds payable as the main constituents. Data by YCharts Free cash flow during the second quarter was negative at $66.36 million, a material deterioration from BKKT's year-ago comp and from the first quarter, when the company generated a positive free cash flow of $36.6 million. The company ended the second quarter with cash, cash equivalents, and short-term investments of $60.67 million. There is another $34 million available from restricted cash. BKKT's liquidity has been on a sustained dip since the firm raised $448 million in gross proceeds following its business combination. The company's zero debt balance could potentially open the space for taking on some debt to buffer its short-term liquidity. Data by YCharts BKKT completed an offering of 34,917,532 shares back in March pre-reverse stock split for roughly 87 cents each. The Form 8-K for the purchase agreement with unnamed third-party investors also highlighted that each offered share included a warrant with an exercise price of $1.02 per share. The dilution against a stock price that had already dipped substantially versus its near-term trading range highlights BKKT's difficult position. The firm needs to raise more funds, but a smaller market cap versus sustained negative free cash flow makes this undertaking materially more dilutive. Data by YCharts The company's average diluted common shares outstanding is up just under 70% over the last 1 year. BKKT also issued a going concern warning on an amended Form 10-Q filed for its fiscal 2023 third quarter published earlier this year. Hence, the company is now weighing a range of strategic options, including a sale of certain business units or a breakup of the company. The timeline for this has not been defined, but with the underlying business making substantial quarterly losses and burning cash, shareholders should temper their expectations of the possible value to be fetched from a sale. The crypto operations would be the most obvious candidate for a sale, but the poor margins make a value at sale beyond what's currently being priced by BKKT's current market cap unlikely. BKKT would face a limited number of quarters of cash runway if its cash burn reflects the second quarter. However, I don't think BKKT is a short candidate, with poor options volume and the specter of a sale hanging over the bears as Fed rate cuts restore animal spirits to drive higher crypto trading volume.
