Summary Bakkt stock price surged on speculation of a buyout by Trump's DJT, but dire financials and limited growth potential have shifted my rating to sell. Bakkt Holdings faces severe liquidity issues with cash and short-term investments at $36 million, a 58% decline year-over-year, and high cash burn. Despite a 60.4% revenue increase in the company's fiscal 2024 third quarter, BKKT's thin margins and high operational costs led to a net loss of $2.89 million. DJT's launch of Truth.Fi reduces the likelihood of acquiring BKKT, which is struggling with negative cash flow and an unsustainable financial position. Bakkt Holdings Overview Bakkt ( BKKT ) saw its stock price get bid up on the back of speculation that the $6.7 billion Trump Media & Technology Group ( DJT ) was in advanced talks to acquire its crypto custody and trading business. DJT, a vehicle in which the 47th president retains a 53% stake, has seen its stock price grow significantly since it joined the public markets through a merger with a blank check acquisition company. Trump's crypto-friendly policy platform has provided a significant boost to companies in the space, with BKKT's common share price up roughly 50% since the November election. Is the ticker now a buy? No. I previously rated BKKT as a hold, this rating is now being moved to a sell on the back of dire financials and a limited pathway for liquidity growth even as crypto experiences a boom. Data by YCharts BKKT, off a 1-for-25 reverse stock split in April, has experienced a collapse of its short-term liquidity as net losses and free cash burn materially reduce the scope of the platform remaining a going concern. The situation is not great, with cash and short-term investments at $36 million as of the end of the company's fiscal 2024 third quarter. This represented a year-over-year liquidity decline of roughly 58% as free cash burn from operations continued to come in hot at $25.6 million during the third quarter. Hence, BKKT needs to be acquired because the company's current cash runway against third-quarter cash burn is extremely limited. Data by YCharts Liquidity, Cash Flow, And Going Concern Risk Bakkt Fiscal 2024 Third Quarter Presentation Bakkt Holdings generated third-quarter revenue of $328.4 million , up 60.4% over its year-ago comp and a beat by $310.72 million on consensus estimates. The growth came in a quarter with crypto activity ramped up amidst the 2024 US election race. The company's monthly notional traded volume reached $279 million in November, with the daily notional traded volume seeing significant gains. Crypto services saw revenue grow by 65% year-over-year to $316.33 million . BKKT's loyalty platform generated revenue of $12.09 million, dipping by roughly $1 million from its year-ago comp. Bakkt Holdings Fiscal 2024 Third Quarter Form 10-Q BKKT's core headwinds are posed by the thin margins it operates under with crypto costs at $312.84 million leaving crypto services profits of $3.5 million. This is then swallowed up by operational costs, with the company's total operating expenses at $355.8 million during the third quarter. This represented growth of 38.2% over BKKT's year-ago comp and meant the company generated a net loss of $2.89 million. BKKT's net loss did realize a significant improvement versus its year-ago comp, but the company's cash flow remains significant and sustained. Data by YCharts BKKT's negative free cash flow for the quarter at $25.61 million was a material deterioration from a year ago, when BKKT generated a positive free cash flow of roughly $23 million. The move means the company was left with cash and short-term investments of just $36 million as of the end of the third quarter. This has placed BKKT's balance sheet in a more difficult position, with the company's total equity dipping by $35 million since the start of 2024 to $102 million as of the end of the third quarter. Bakkt Fiscal 2024 Third Quarter Presentation BKKT needs to raise more funds, or it will run out of cash. The current cash runway depends on several variables. If cash burn reflects the third quarter, then BKKT would face material constraints to becoming a going concern without further funds as soon as the end of the second quarter of its fiscal 2025. The buyout speculation is happening in the shadow of a firm facing significant financial constraints, with BKKT not currently with enough funds for continued operations through the full fiscal year 2025. The acquisition rumors came after DJT filed a trademark application with plans to create a cryptocurrency payment platform. Bakkt Fiscal 2024 Third Quarter Presentation DJT has since launched Truth.Fi , its financial services platform. The platform aims to offer traditional investment vehicles, crypto-related securities, ETFs, and retail investor accounts. The move forms a broad blindside to speculation surrounding an acquisition of BKKT, with DJT now seemingly looking to develop its own direct product rather than acquiring the loss-making BKKT, facing a dwindling liquidity balance and an increasingly limited cash runway. While an acquisition could possibly happen, BKKT is operating under an increasingly tighter liquidity backdrop with an unprofitable core operation whose negative cash flow profile means the ticker is not investable. The unlikely scenario where a deal is pushed through would be one where DJT picks apart BKKT and is incredibly selective about what functions from BKKT's crypto trading platform it acquires. A deal by DJT to acquire BKKT post the launch of Truth.Fi now doesn't make much sense, but there is a risk to any short positions from this scenario playing out.
