Regulatory Tailwinds And Institutional Adoption Will Shape A Cautious Yet Constructive Outlook

Catalysts

About Bitgo Holdings

Bitgo Holdings provides institutional digital asset infrastructure, including wallets, custody, trading, staking, lending, stablecoin services and related compliance tools.

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

• Although institutions across banking, asset management and fintech are increasing their digital asset projects, long sales cycles and phased rollouts can slow the pace at which new custody, wallet and prime relationships translate into meaningful revenue and earnings contribution.
• While adoption of stablecoins and tokenized assets is growing, Bitgo's Stablecoin as a Service and tokenization offerings depend on issuers achieving scale, so any delay in use cases such as payments, settlements and tokenized equities could limit growth in fee based revenue.
• Despite a broad product suite that encourages cross sell into trading, lending and staking, the mix shift toward derivatives and yield seeking activity can pressure overall take rates and increase operating complexity, which may cap future expansion in net margins.
• Although regulatory frameworks such as the GENIUS Act and OCC charter give Bitgo access to a wider addressable market, the time it takes for follow on rulemaking, state level frictions and client compliance build outs may slow the ramp in subscriptions, services and custody related revenue.
• While interest in agentic wallets, programmable finance and real world asset tokenization is rising, these areas are still early stage and rely on continued client development budgets, so a slower commercialization path could weigh on longer term earnings and adjusted EBITDA growth.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on Bitgo Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Bitgo Holdings's revenue will grow by 14.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -0.5% today to 0.2% in 3 years time.
• The bearish analysts expect earnings to reach $59.4 million (and earnings per share of $0.46) by about September 2029, up from -$95.7 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $145.2 million.
• 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 20.4x on those 2029 earnings, up from -9.0x today. This future PE is lower than the current PE for the US Capital Markets industry at 39.7x.
• 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 8.97%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Sustained institutional adoption of digital assets, supported by Bitgo’s broad regulated footprint across the U.S., Europe, Asia and the Middle East and new licenses in regions such as India, South Korea, the U.K. and Cayman Islands, could drive higher client inflows and transaction activity than expected. This would likely lift revenue and earnings.
• Growing traction in higher value services like derivatives trading, lending, and large scale staking, including the contribution from new tokens such as Canton and the shift of clients from spot into derivatives, could support higher take rates and a mix tilted toward fee rich products. This would likely support net margins and adjusted EBITDA.
• The expansion of Stablecoin as a Service, with assets under management above US$5b and new issuers such as SoFi USD and other white label stablecoins, alongside growth in tokenized assets, could lead to a larger recurring fee base than implied by a flat share price view. This would be supportive of subscriptions, fee revenue and earnings.
• Regulatory tailwinds, including the OCC national bank charter and potential passage of the CLARITY Act, may widen Bitgo’s addressable market among traditional financial firms that have already built digital asset programs. This could increase custody, wallet and prime services adoption and support revenue and long run profit margins.
• High client attach rates, with a large portion of revenue generating clients already using multiple Bitgo products, together with a lending book of about US$207.4m and strong ETF and ecosystem partnerships, could deepen cross sell and raise average spend per client. This would likely support revenue growth, operating leverage and earnings.

Valuation

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

• The assumed bearish price target for Bitgo Holdings is $6.5, which represents up to two standard deviations below the consensus price target of $10.29. This valuation is based on what can be assumed as the expectations of Bitgo Holdings'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 $15.0, and the most bearish reporting a price target of just $6.5.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $30.0 billion, earnings will come to $59.4 million, and it would be trading on a PE ratio of 20.4x, assuming you use a discount rate of 9.0%.
• Given the current share price of $7.3, the analyst price target of $6.5 is 12.3% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
• 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.