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Galaxy Digital Swings to Profit in Q4 Earnings

While Galaxy shares are up more than 200% over the last year, its obvious to anyone paying attention to the stock that the company isn’t getting the same love from retail as companies like Coinbase (COIN) or Microstrategy (MSTR).

On Tuesday, Galaxy Digital (GLXY) reported Q4 earnings that showed a massive swing to profitability. The company reported: 

  • $302 million of Q4 net income (vs. -$94 million in Q3)

  • $296 million in full year net income  (vs. -$1.02 billion in full year 2022)

Here’s a quick rundown of what else you need to know about the institutional crypto provider’s Q4 earnings.

On Assets Under Management

Galaxy now has more than $10 billion in Assets Under Management (AUM), primarily driven by their exclusive management of the FTX portfolio. 

While the portion of the AUM that is tied to the FTX estate will certainly decrease as Galaxy monetizes the portfolio, the fees associated with the unwinding will become “meaningful revenue drivers for the business in the upcoming months.”

On Venture 

On the earnings call, the company announced that they are in the process of going to market to raise money for their crypto venture fund.

The company’s CEO, Mike Novogratz, spoke multiple times on the earnings call about the fact that the private crypto markets are lagging the public markets. He believes we are at a crux in which the time to begin investing in private crypto companies is here.

We don't feel like we have seen anywhere near the private market correction yet that we have seen in public markets… the opportunity to put money to work in that space is better than it's ever been in the last half a decade.

On Mining

As we’ve previously reported, Galaxy’s mining business has expanded dramatically since their acquisition of Helios. Mining revenue for the year came in at $58.5 million, an increase of 63% from the year prior. 

Over the course of 2023, the company mined 1,077 bitcoin from their operations at a cost of less than $8,000 per coin. 

Compared to bitcoin mining pure-play companies, 1,077 may be on the lower end of production…

…But based on their marginal cost to mine 1 BTC (<$8,000), they are arguably one of the lowest cost institutional miners in the market.

On Up-listing to the US Markets

The company continues to engage with the SEC regarding the all-important NASDAQ up-listing. On December 22nd the company responded to its 5th round of SEC comments. 

With that being said, Mike Novogratz didn’t seem very enthusiastic about the prospect of approval until after the presidential election stating: 

“Let me be absolutely clear. We have been doing what we can do for over 2 years, trying to get public in the U.S. We have had an SEC that has allowed companies that are Bitcoin only… but have not allowed companies that deal with anything other than Bitcoin… And so we are hopeful, but not optimistic that in the current SEC, they're going to change their mind. 

And I think until we get a change in leadership, we can be hopeful but not optimistic. There is not much else we can do. We answer their questions. We are diligent… I would say that there's an election coming in 8 months and there will be turnover. If the Republicans win, we think that will be faster. But even if the Democrats win, I think you'll have new leadership at most of the agencies.”

Emerging Opportunities

  • Staking: While the company only reported $243 million of total assets under stake, on the earnings call they noted that they expect to see this number to grow to more than $1.5 billion in the coming weeks. This presents a recurring revenue stream for the company, similar to what we see from Coinbase.

  • European ETPs: After teaming up with DWS last year to to develop exchange-traded products for listing in Europe, the products will be finally launching in April.

Interestingly, unlike previous earnings calls and interviews with Novogratz, the company didn’t mention M&A as a driver once.

Our Take

While Galaxy shares are up more than 200% over the last year, its obvious to anyone paying attention to the stock that the company isn’t getting the same love from retail as companies like Coinbase (COIN) or Microstrategy (MSTR).

The fundamental business is strong and the roadmap is impressive, but their inability to up-list to the NASDAQ is still weighing the company down. And if the up-listing is 8+ months away, investors are simply going to invest their dollars elsewhere until the company’s value can actually be realized.

Galaxy exists at the intersection of crypto and traditional finance, but to the average investor, exactly what the company does and how it makes money is difficult to understand.

The fact that the stock fell 6% after reporting strong earnings is a testament to that fact. But in the long run, does that matter?

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