Upexi: Offering Registration Likely Limits Upside (Rating Upgrade)

Summary Upexi, ￰0￱ have dropped significantly since May, now trading at a discount to their Solana holdings' basic mNAV. UPXI's value is heavily tied to its 2 million SOL holdings and staking yields, but dilution risk from 48 million registered shares limits ￰1￱ consumer product business continues to decline, raising concerns that future operations may require selling SOL or using staking rewards for expenses. I cautiously upgrade UPXI to 'hold,' as a potential mNAV re-rating could occur if SOL surges, but dilution and operational risks ￰2￱ in May, I initiated coverage of Upexi, Inc ( UPXI ) and called the stock a 'sell' due to its inflated valuation relative to the combo of its legacy business and its Solana ( SOL-USD ) themed DAT ￰3￱ that 'sell' call, UPXI shares have fallen by as much as 70%.

Currently, UPXI shares are just 40% off that mid-May sell call: Data by YCharts Given the fact that SOL is actually up 5% over that same stretch, I think it would be fair to call UPXI's performance as a SOL-proxy considerably poor over these last 5 ￰4￱ I said at the end of that May piece, good assets can be purchased at a bad ￰5￱ even though Upexi paid a great price for its SOL earlier this year, $10 for UPXI in May was a bad ￰6￱ a price currently under $6, prospects look a lot ￰7￱ Strategy and mNAV Just as (Micro)Strategy ( MSTR ) had been able to do for the last several years, Upexi quickly scaled up its Solana holdings through various financial instruments like common stock and convertible note ￰8￱ to data tracked by Blockworks Research, Solana DATs hold roughly 15.8 million SOL ￰9￱ DAT Supply (Blockworks) Of that combined SOL position through DAT companies, Upexi holds a little over 2 million SOL and is the fourth largest Solana-themed DAT in the ￰10￱ table below breaks down the value of Upexi's Solana relative to its current market capitalization and its post-share registration diluted market capitalization: mNAV Calculation Prior To Offering Offering Completion Shares 58,888,756 94,457,980 UPXI Price $5.61 $5.61 Solana 2,018,419 2,018,419 Solana Price $185 $185 Solana Value Per Share $6.34 $3.95 mNAV 0.88 1.42) 621,353 Warrants ($4.20 ex) 1,848,735 Debt Converts 186,667 Preferred Converts 138,889 RSU from Incentive Plan 2,250,000 Total 5,045,644) In Upexi's last earnings report, the company noted an 8% annualized yield from staking ￰11￱ yield has come down quite a bit since the end of Upexi's last reported ￰12￱ can think of the relation between staked assets and staking yields similarly to the way they would bonds or dividends; the more demand there is for yield, the lower the yield goes.

Upexi's Staked SOL 2,018,419 Annual Yield as of 10/16 6.5% Annualized Return at $185 $24,271,488) $9.8 million of Upexi's $11.2 million decline in revenue year over year was due to its divesting of its re-commerce business. Still, this implies that even adjusting for the re-commerce portion, Upexi's owned-brand consumer product business looks to have contributed roughly $1.4 million to that year over year revenue ￰13￱ point is, if Upexi continues to operate its consumer business, it could come at the expense of SOL holdings in the future either through liquidated staking rewards or capital raised through equity offerings going toward ￰14￱ Thoughts As I see it, the potential headwind of 48 million shares coming into the float without leading to direct SOL purchases limits the upside of the ￰15￱ a basic mNAV discount, Upexi theoretically has an incentive to sell Solana and buy back common shares if doing so could generate greater returns than the staking yield from the ￰16￱ I largely view such a strategy as ￰17￱ expectation is UPXI will perform in correlation with SOL for the foreseeable future, but may continue to lag the underlying in the event large quantities of the registered shares are sold.

I'll cautiously upgrade UPXI to a 'hold' due to the possibility that basic mNAV could re-rate from a discount to a premium in the event SOL surges in ￰18￱ I still don't personally have any interest in buying shares of UPXI at this point in time.