Gemini Space Station: Serious Concerns About This Offering

Summary Gemini Space Station surged on IPO debut, fueled by crypto/blockchain hype, but fundamentals remain weak and growth is slowing. Despite a Nasdaq partnership and $50M investment, GEMI trades at over 30x sales, with revenue growth decelerating and persistent large losses.

Given the disconnect between bullish pricing and poor fundamentals, I remain highly cautious and find GEMI an easy stock to avoid. Shares of Gemini Space Station ( GEMI ) have "of course" enjoyed a huge opening day gain, with crypto and blockchain being hugely in demand here, arguably being the second-hottest thing in town behind AI.

While the business was established quite early in the crypto/blockchain wave over the past decade, I am not impressed with its fundamental performance. With growth rapidly slowing down and losses being very large, it is very hard to be upbeat, with this fundamental performance not corresponding with the bullish pricing action here.

Totally not convinced about the quality of this business, and recognizing the disconnect described above, I find it very easy to be very cautious here, with Gemini being a very easy offering to pass on. Using Blockchain To Unlock Finance Gemini Space Station was founded by the Winklevoss brothers after they recognized the power of Bitcoin when they got familiar with the currency back in 2012.

Bitcoin, based on blockchain technology, works 24/7, as the same does not apply to traditional financial markets, where weekends, banking holidays, and others create real costs, barriers, and delays in money transfers. With earlier exchanges and infrastructure lacking security and user experience, Gemini was going to be based on strong products, great security, licensing, and compliance, all required to make adoption of such platforms go mainstream.

This is the basic foundation behind Gemini, which was founded in 2014 with the goal of connecting crypto with the mainland. Over a decade later, the company has become a platform that includes over half a million people, 10,000 institutions, covering 60 countries, and over $20 billion in assets.

In fact, over $800 billion in transfers have been processed through the platform since its inception, also aided by a growing crypto market capitalization, standing at $3 trillion in 2024. Valuation and IPO Thoughts Gemini aimed to sell 16.

7 million shares in a preliminary price range between $24 and $26 per share, which was up from levels in the high teens in recent weeks, with final pricing set at $28 per share, above the high end of the midpoint of the preliminary guidance. This means that the business has obtained gross proceeds from the IPO of $467 million, which excludes proceeds from the green shoe option.

With nearly 119 million shares outstanding, the company is awarded a $3. 3 million equity valuation at the offer price.

It is a bit hard to read into the pro forma net cash or net debt position in between (related) third-party loans, convertible loans, also as the business holds nearly half a billion in crypto assets on the books itself, which makes the situation rather fluid. For the year 2023, the company generated just over $98 million in revenues, with the business posting a staggering $311 million operating loss, which, despite a modest crypto gain on assets held, did not prevent the business from posting a massive net loss that year.

Revenues were up about 44% to $142 million in 2024 as operating losses narrowed substantially to $165 million, essentially cut in half from 2023, but still exceeding revenues reported for the year. Revenue growth slowed down to just 8% in the first half of the year, with revenues reported at just $74 million.

Operating losses narrowed substantially, but at $85 million still exceeded reported revenues, indicating that, in between growth rapidly slowing down, losses are still very large by all accounts. However, somewhat comforting is recent news, which includes a partnership with Nasdaq ( NDAQ ).

As part of the deal, Nasdaq will buy $50 million of Gemini's shares at the offering, but furthermore, cooperate on their respective platforms. With shares trading around the $40 mark soon after the public offering, the market value of the firm has risen to nearly $4.

8 billion. This values the business at over 30 times sales, revenues which furthermore are not showing very strong growth and come with huge losses.

Concluding Thoughts Frankly, I am very skeptical about this offering. While some recent crypto and blockchain businesses have real use cases, I am quite cautious here, given the platform function.

Outside the valuation discussion is the simple observation that revenue growth has slowed down dramatically to non-appealing growth rates in recent times, but moreover, this is accompanied by operating losses that still exceed revenues. That observation is my key concern in relation to the valuation, as other risks include that of an unfavorable direction of travel of crypto assets at large, also given that the company holds inventory of such currencies.

Other operational risks include potential technical and security issues, but the main observance of slower growth and high valuations stands at the basis of my caution here.