Summary Bitcoin Depot Inc. is the largest Bitcoin ATM operator in North America, with 6,404 kiosk locations. The approval of spot Bitcoin ETFs has increased interest in Bitcoin and could lead to more customers using Bitcoin Depot's BTMs. The company faces competition from centralized exchanges and decentralized applications offering fiat-to-crypto conversion services. Bitcoin Depot Inc.'s (BTM) stock has been in what I'd like to call "hibernation mode" for the past few months. The company's business model primarily revolves around operating a network of Bitcoin ( BTC-USD ) ATMs, also called BTMs (Bitcoin Teller Machines), in the US and Canada. BTMs allow users to convert cash to cryptocurrency through a physical medium of exchange. As of the end of last year, Bitcoin Depot operated BTMs in 6,404 kiosk locations, making the company the biggest Bitcoin ATM operator in North America. Last year saw a record plunge in the number of active cryptocurrency ATMs worldwide and the US, with about 5730 decommissioned BTMs in 2023. It is no longer news that the spot Bitcoin ETF approval has created a fresh buzz and revamped interest in Bitcoin, with Bitcoin recently breaking its 2021 all-time high price. Will this renewed interest in the crypto asset translate to a boost in the use of BTMs and turn into more sales and stronger guidance for a dominant BTM operator like Bitcoin Depot Inc.? The renewed interest in Bitcoin, driven by the approval of spot Bitcoin ETFs, has already created increased Bitcoin trading volumes on centralized crypto exchanges ((CEX)). The spot Bitcoin ETFs have continued to smash records in terms of volume and inflows. It is logical to expect that the approval of spot Bitcoin ETFs and the resulting momentum and price rally in Bitcoin could lead to increased interest and demand for Bitcoin exposure. As a result, Bitcoin Depot may see improved customer retention and attract new customers who are seeking to invest in Bitcoin. The popularity of the spot Bitcoin ETFs may serve as a catalyst for broader adoption of Bitcoin and drive more individuals to explore avenues like Bitcoin Depot's BTM services for acquiring Bitcoin. On the flip side, it is also possible that the availability of spot Bitcoin ETFs could lead to some market share competition for Bitcoin Depot. Investors who previously relied on BTMs to purchase Bitcoin may now opt for the convenience and accessibility offered by ETFs for Bitcoin exposure, potentially reducing the demand for BTM services. This is a two-edged sword situation. However, In my view, I believe that it is more likely that the increased interest in Bitcoin will translate into higher customer retention and acquisition for the company, rather than significant market share loss. In FQ3 2023, Bitcoin Depot recorded 28,000 new customers. Besides the spot BTC ETFs, the business faces some competitive challenges with several crypto exchanges now offering cash-to-crypto conversion right in their mobile and desktop wallets. Top crypto exchanges, like Coinbase (COIN), provide seamless in-app fiat-to-crypto services, with options to utilize several payment methods, including debit cards and PayPal (PYPL). Most of these in-app crypto purchases with fiat are mostly two to three-step processes and are more instant. To top it off, there are now fiat-to-crypto services, like Robinhood Connect , directly available in decentralized applications (dApps) and crypto self-custody wallets, eliminating the need to go through a centralized source for crypto purchases. I believe that the process of cash-to-crypto conversion through BTMs would seem tedious to the average users over time, compared to making use of online wallets for such fiat-to-crypto conversions. However, I still believe some individuals may prefer physical transactions. Also, for users who prioritize privacy and security, BTMs could still hold appeal despite the added steps involved in the purchasing process. BTMs provide a relatively anonymous way to purchase Bitcoin compared to centralized exchanges, which may require extensive KYC. Buying Bitcoin on one of Bitcoin Depot's BTMs requires the download of Bitcoin Depot's mobile app and the creation of a mobile wallet on the mobile app. Then physically locating a BTM on which the user will enter details like name, BTC purchase amount, and phone number. Then a verification code will be sent to the user's phone to verify the BTC purchase. On verification of the purchase, the user will provide their wallet address, after which they then proceed to insert dollar bills into the BTM to complete the cash-to-crypto purchase. That's a six-step process that involves some form of physical commute and interaction. The easier and more seamless ways of converting fiat to crypto cast some doubt on the long-term viability of BTMs. Fees are also a major concern when using Bitcoin Depot's BTMs. Fiat-to-crypto service provider, MoonPay , charges a 4.5% fee on Bitcoin purchase transactions that use debit or credit cards. While a transaction that involves a bank transfer attracts a 1% fee. Transactions on Bitcoin Depot's BTMs have a markup of up to 23%, meaning customers may pay a premium of up to 23% over the market price of Bitcoin at the time of purchase. The most actively traded spot Bitcoin ETFs among the newly-launched spot Bitcoin ETFs have seen a much-narrowed bid-ask spread since launch, meaning less of a premium compared to Bitcoin Depot's BTMs. Bitcoin Depot services aren't all about physical interaction with BTMs only, as the company also offers a service called BDCheckout , currently available at 4,656 locations across North America. The service gives users a way to add Bitcoin to their digital wallet without going through an online crypto exchange or interacting with a BTM. With BDCheckout, all the customer needs to do is generate a transaction barcode on the Bitcoin Depot app, and then the customer visits a BDCheckout participating retailer to pay the transaction amount in cash. The customer then has their Bitcoin wallet funded. BDCheckout can be considered the closest competition to the seamless in-app fiat-to-crypto conversion services offered by the likes of Coinbase and MoonPay. As of FQ3 2023, BDCheckout makes up 35% of Bitcoin Depot's non-kiosk revenue. Disaggregated Non-kiosk Revenue (Bitcoin Depot Earnings Report) Non-kiosk revenues are revenues the company generates from sources separate from its physical BTM kiosks. The total non-kiosk revenue for FQ3 stands at a paltry $789,000 compared to total sales of $179 million. BDCheckout represents $273,000 in sales. This shows that the company's main operation and source of revenue remains its BTMs. Another downside I perceive for BTM operators is that there is little room for business diversification in their business model. If BTMs see a drastic decline in usage, then BTM machines will become useless and can't be converted into other uses. For a company like Bitcoin Depot to diversify in such a scenario, it would need to incur fresh and substantial CapEx and hire new labor for diversification into other ventures. This is why in considering Bitcoin-exposed stocks, I would pick Bitcoin mining companies over BTM operators. Bitcoin mining companies' business model presents much room for business diversification. Using a majority of hardware and resources procured for mining, Bitcoin mining companies can easily diversify into GPU rendering for AI or high-performance computing (HPC). It is worth noting that some mining hardware, such as the ASIC mining chips, are custom-built for crypto mining, and their architecture and design are optimized for crypto mining purposes only, making them difficult to repurpose for other tasks. Despite this, miners can leverage their existing infrastructure, including data warehouse facilities, cooling systems, and electrical power, to support diversification efforts. Some practical examples of miner diversification are HIVE Digital's (HIVE) recent diversification into AI rendering , HUT 8 Corp. (HUT), HPC solutions , and Iris Energy (IREN) HPC strategy . Bitcoin Depot Financials Revenue came in at $179.5 million for FQ3, and management is guiding for full-year 2023 revenue of around $700 million to $730 million, which I think the company could achieve. I anticipate more new customers in FQ4 for the company, as Bitcoin momentum has been strong. FQ3 sales were driven by the sustained strength in customer traffic and an increase in new customers. Bitcoin Depot recorded 28,000 new customers in FQ3. With the momentum Bitcoin saw in anticipation of spot BTC ETFs in Q4 last year, I expect a sustained inflow of new customers for Q4; hence, solid revenues. Cash and Cash Equivalent (Bitcoin Depot Earnings Report) The company's cash position has declined since the end of FY22. Factors related to the reduction of long-term obligations are responsible for the decline in the company's cash position. These include the refinancing of the company's term loan facility and the continued paydown of finance leases, as highlighted in the FQ3 report. I anticipate a tight cash position for the next few quarters due to the company's ongoing expansion efforts. Part of the expansion efforts include a recent purchase of 400 additional BTMs . We plan to expand aggressively in kiosk count in 2024 to attempt gain significant market share Bitcoin Depot CEO Brandon Mintz Takeaway While this stock isn't exactly the most appealing Bitcoin-related stock, and the business model seems not as viable as those of exchanges like Coinbase or miners like Marathon, BTM is still worth keeping on the radar. The next earnings result for FQ4 and full-year 2023 will tell a lot about this company. This is one stock that hasn't moved the needle for several months, and good financial performance coupled with sustained Bitcoin momentum could easily propel this stock's price higher.
