BitGo shares rise 5% as Q3 net income jumps 94% on treasury gain

What happened

BitGo Holdings shares gained nearly 5% in Monday's regular session, closing at $5.10, up $0.24, according to Google Finance data cited by Crypto.news. The move came before the crypto custody company published its third-quarter earnings release on November 9. The stock opened at $4.80 and traded between $4.74 and $5.18, with roughly 915,000 shares changing hands.

Once the results were out, the shares gave back part of the gain, slipping 1.14% in after-hours trading to $5.04, both Crypto.news and Blockonomi reported. The reports said the regular-session rise occurred ahead of the disclosure.

For the quarter ended September 30, BitGo reported net income of $44.1 million, a 94.4% increase from a year earlier, and diluted earnings of $0.36 per share versus $0.15. Revenue, however, fell 50.9% to $2.85 billion from $5.81 billion, and was down 34.1% from the second quarter's $4.33 billion.

The company attributed the revenue decline to weaker cryptocurrency trading activity and a larger share of lower-margin stablecoin transactions. Blockonomi reported that the revenue figure missed the $4.2 billion Zacks consensus by 32%.

Why it matters

The quarter illustrates how BitGo's bottom line can diverge sharply from its core business performance. The profit increase was driven mainly by a $71.5 million unrealized gain on the company's digital asset treasury, a paper gain rather than cash generated by operations, as Blockonomi noted. Meanwhile, BitGo recorded an operating loss of approximately $19.2 million and an adjusted EBITDA loss of $4.3 million.

Its largest revenue line, digital asset sales, brought in $2.72 billion but contributed only $4.2 million after costs, a margin of 15 basis points. That compares with 17 basis points in the second quarter and 20 basis points a year earlier. Revenue after direct costs fell 32.1% to $37.3 million.

What the data shows

Stablecoin-as-a-Service revenue reached $37.4 million, up 52.5% year over year but down 3.8% sequentially, with a 7.7% take rate versus 3.6% a year earlier. Staking revenue was $68.2 million, down 24.1% annually but up 5.4% from the prior quarter, while subscriptions and services contributed $25.6 million. BitGo repurchased $24.7 million of stock under a $50 million authorization, leaving about $25.3 million available. As of September 30 it held 2,399 Bitcoin worth $200.4 million and $143.2 million in cash and equivalents. The stock has traded between $4.36 and $24.50 over the past 52 weeks.

Background

BitGo has been reshaping its business toward institutional services. During the quarter it completed the acquisition of NYDIG's institutional trading business, adding derivatives, structured products, financing and trading capabilities, and it expanded OKX settlement arrangements internationally. CEO Mike Belshe said in the release that the company "expanded our global footprint" with the NYDIG deal, according to both reports.

Client numbers grew to 6,640, up 33.1% from 4,988 a year earlier, and the platform served about 1.3 million users. Reported platform assets fell to $59.9 billion from $104 billion as crypto prices declined, but BitGo said that adjusted using current-quarter median prices, platform assets rose 31.9% and staked assets rose 41.1%. Operating expenses excluding direct costs fell 5.5% sequentially to $56.6 million, following cost cuts that Blockonomi said included a June layoff of about 15% of staff.

What to watch

Investors will be watching whether trading activity recovers and whether the shift toward stablecoin and institutional services can lift margins that have compressed for several quarters. The contribution margin on digital asset sales has fallen from 20 basis points a year ago to 15 basis points. Also worth noting: Riot Platforms completed its Bitcoin custody transfer from NYDIG to BitGo on October 29, ending a relationship that began in November 2023, which may affect future client and asset figures.

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