Summary EXOD, a relatively unknown firm with a $1B market cap, outperforms near-peers but falls short against the broader industry. The company is debt-free with strong financial health, and holds significant digital assets, but faces risks from crypto volatility and recent financial reporting errors. Relative valuation suggests a target price of $41.74, representing an 11% upside, but lacks a compelling investment case at this time. EXOD presents an opportunity to capitalize on crypto trading volumes and crypto assets both directly and indirectly. Introduciton Across the S&P500 ( SPY ) ratings are beginning to look a little overweight, with the P/E of the index's components sitting at a record high of 29.64, against the backdrop of a longterm median of 17.93 . Within the index, firms from the Information Technology sector (making up the largest sector component by market cap at 28%) are sitting at a P/E of 43.21, well above the weighted average of 29.64. Comparing Market Capitalization Weighted Average analyst ratings for the IT sector, IT scores a Seeking Alpha Quant rating of 3.38 (vs 3.41), Seeking Alpha analyst rating of 3.30 (vs 3.47). Only Wall Street Analysts hold more bullish positions on the sector compared to the index, at 4.29 (vs 4.10). Author Further, it would appear that Seeking Alpha analysts are slightly less bullish on the Information Technology stocks of the S&P500 overall, compared to the sector at large, with a weighted average 3.35 rating for IT stocks in the SPY vs 3.50 for the IT sector overall. Rating Whole Sector ( IT ) Sector - S&P500 ( IT ) SA Quant 3.14 3.38 SA Analyst 3.50 3.30 Wall Street 4.07 4.29 So how does this relate to Exodus Movement, Inc. ( EXOD )? EXOD has very little analyst coverage and appears to be relatively “unheard of”, flying under the radar with a $1B market cap. We aim to initiate coverage of the stock for Seeking Alpha, setting a relative valuation price target, and to see how a seemingly unheard-of firm compares to it's sector and industry, amidst an environment where SPY component firms appear to be highly overweight and at risk of a downward correction. For the uninitiated, EXOD designed and runs a crypto currency trading platform described as “…an un-hosted and self-custodial cryptocurrency software wallet,”, earning API fee revenues from third-parties it has partnered with to utilise it’s tech. The question to be answered in this article is: Can an “under the radar stock” outperform much larger rivals? Thesis Our belief is that EXOD outperforms it's near peers across several key metrics including profitability, however it falls short of the performance observed by the wider Software Application sector. We believe that there is an argument that EXOD deserves the attention of investors to watch the stock and await a more attractive valuation before striking. We believe this, because the firm has solid underlying financials and a double-exposure to crypto, both through direct crypto holdings, and profiting from crypto transaction volumes through it's third parties. Health Check We start by assessing the financial health of EXOD to get a picture of what we’re working with under-the-hood. See below our analysis spreadsheet. The firm carries no debts, and holds a formidable Quick Ratio and Current Ratio position, which has marginally trended downward since September 2023 but still remains a highly liquid position. Regarding the Debt Health Check, the firm does not require assessment in this space (note negative Net Debt results from cash and short term equivalents exceeding debts). Gross margins are solid, albeit below the sector median (58.6%) and well-below the application software industry median (73.2%). Income margins are where things start to get interesting, and this is due in part to the large holdings of crypto currencies, which have recently fluctuated in value and thus impacted the profit and loss with revaluations, creating volatility in EBITDA / operating margins. (Note: The FASB's new crypto standard ASU 2023-09 , “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” released in December 2023, allows entities to recognize both realised and unrealized gains or losses on the movement in crypto values if the assets are operational in nature - see below screengrabs from EXOD's 10-Q outlining these items) EXOD 10-Q EXOD 10-Q EXOD 10-Q The March 2024 quarter reflects a revaluation of EXOD's digital assets, where it recognised unrealized gains in digital assets of $52.8m, which explains the net income margin of 188.53% (a large increase in the asset value being recognized as profit, creating a situation where the firm has generated net profits above the total revenue for the period). Likewise, unrealised losses in the value of digital assets of $30.6m explains the significant negative result in June 2024. Seeking Alpha Interestingly, these crypto currencies sit on the balance sheet as “Other Intangibles”, listed in the 10-Q as “Digital Assets” ($124.867m) along with “Software assets” ($7.315m) and “Indefinite-Lived Assets” ($1.945m), suggesting that investors may miss these valuable assets when assessing the company if not looking closely through the 10-Ks or 10-Qs. Investors only interested in “Tangible Book Value per Share” would be seeing a total tangible firm value of $56.82m ($2.12 per share) vs a Tangible Book Value per Share + Digital Assets of $181.68m ($6.78), suggesting a Price to TBVPS + Crypto ratio of 5.57. This would also suggest the real cash and short term equivalents balance should be $69.8m cash & ST Equivalents + $124.867m = $194.667, or $7.26 cash, ST Equivalents & Crypto per share. The firm does not pay dividends and therefore there is no analysis here. Lastly, the firm is not burning cash, and therefore this is not a concern. Author A difficulty in understanding the firm's cashflows is how it treats transactions and investments in crypto, which appear in both the operations component of the cashflow, and the investing. The difference is whether the firm treats the transaction as operational or as an investment. Per the firm's 10-Q, they define the difference in recognition of digital asset cashflow as: "Digital assets that are received as noncash consideration in our revenue arrangements and sold for cash within seven days are presented as cash flows from operating activities, while other digital asset activity held longer than seven days is reflected as cash flows from investing activities in the consolidated statements of cash flows" Peer Comparison See the Peer Comparion on Seeking Alpha Here At a market cap of 1.06B, EXOD would be ranked 84th against the Application Software industry by market capitalization, with near-peers including: Quantum Computing Inc. ( QUBT ) Weave Communications, Inc. ( WEAV ) Viant Technology Inc. ( DSP ) PROS Holdings, Inc. ( PRO ) Blend Labs, Inc. ( BLND ) Notable, the firm outperforms it’s near-peers across a number of metrics including price to earnings (being one of the few profitable companies in the peer group), has a far safer risk-profile than the peer group thanks to it’s debt-free status, and outperforms on all income statement metrics. Seeking Alpha Seeking Alpha Seeking Alpha Seeking Alpha Valuation Turning to a sector and industry relative pricing, we'll look to establish a price target based on historical performance. We’re unable to utilise price to cashflow as the firm is not generating free cashflow due to it’s investment activities. EXOD’s valuation based on the median sector and industry metrics does jump around quite a bit, but if we average these out to reduce some of the noise, we land on a valuation range of 34.04 to 49.45. Landing between these two is an average relative valuation of 41.74, representing an +11% price target for the firm. Author At this valuation, we would see EXOD move upward 8 places by market capitalization compared to the sector, and up 2 places in the Software Application industry, with a market capitalization of 1.177B. Author Growth Opportunities There are two key opportunities for value growth in EXOD. The first is the firm's direct exposure to crpyto, with circa $134m in digital assets on it's balance sheet at September 2024 (this balance will have likely increased dramatically to date given recent crypto moves). Bother Etherum and Bitcoin's prices to the 9th of January closed significantly higher than the what the price was at September 2024, post the US election which drove prices sky-high (Bitcoin is up 30% to date and Ethereum up 24%). These suggest that if the firm has made no changes to it's crypto portfolio, it is likely to recognize significant profits of $52.8m in unrecognized crypto gains. Author The big unknown here is what trades have occurred since the September quarter, and the US elections. The second key growth opportunity here is the firm's exposure to crypto trading volumes, which have grown dramatically following the US elections. The bonus exposure here is that EXOD profits from these volumes through it's partners, receiving API fees, meaning it profits regardless of the price of crypto. Cryptoslate While volumes have eased off slightly since December, crypto is likely to see heightened trading activity throughout the Trump presidency given his pro-crypto stance and moves to establish a strategic reserve. Risks Crypto is risky by it’s volatile nature, and given such a large portion of EXOD’s balance sheet is made up of digital assets, and by extension it's liquidity, this represents a large risk to the overall value of the company. The firm is also exposed to the solvency of it’s customers, being the partnerships it forms in the market with third-parties utilising the software to transact crypto and paying API fees. By extension, this also means that the firm is indirectly exposed to risk through a fall in the volume of crypto trading, as it’s likely many of these partners generate revenue from transaction volumes, rather than the price of crypto. A particularly interesting risk to EXOD is recent errors in their financial reporting due to a lack of qualified staff and internal controls. Detailed in the most recent 10-Q , the firm states the following: EXOD 10-Q This presents a serious risk to investors regarding the reliability of financial reports. Material misstatements being corrected in the future could result in significant changes in the financial position of the firm, and a negative impact on the firm. The firm further goes on to detail it’s remediation plan, including the hiring of additional personnel and a reorganisation of it’s internal controls. It’s worth noting that remediation efforts are continuing, and investors must be mindful that further restatements are possible in the future. Conclusion Overall, EXOD outperforms near-peers across a range of metrics, however against the industry at-large falls somewhat short. An attractive feature is the debt-free status of the firm, with an underlying exposure to crypto currencies through it’s digital assets balance, and further exposure to the crypto market through it’s B2B platform, but without the need to service debts putting the firm's solvency at risk if the value of crypto assets crash. Investors should be mindful of the recent financial restatements and ongoing remediation, as well as crypto market volatility overall. We rate EXOD as a HOLD at this valuation, with nothing to get particularly excited about but worth continued monitoring, awaiting a more attractive strike price. Target price: $41.74 (up 11%) Conviction: Moderate (60% confidence)
