We posted about NASDAQ:MATH about 1.5 years ago and think it’s time for an update, especially after the Trump administration. The old thesis can be found here: https://www.bidclub.io/posts/clugufj2n00011nl2aruhq569 and most of the information remains relevant & true today. But the #’s and dynamics had improved and probably a good time for a update on the latest (although still brief):

A. Numbers - think actually pretty spot-on vs. estimate; potential upside even.

MATH posted Mar-Sep 2024 results to show about ~6 mm USD of PnL on 20 mm of revenue. With Sep 24 - Mar 25 coinciding with Bitcoin all-time high + Trump win, we feel pretty good about them doing similar numbers for 2H and thereby posting ~40 mm USD of Mar 25 revenue — with maybe 15-20 mm USD of net profit, bringing the FY LTM EPS to 38 - 50 cents.

Peers like AMBR, ANTA, and a bunch of random comps easily trade at 25-50x PE. In this environment anything that touches crypto are going up (probably won’t last). So even at 20-25x (which is what the market prices MATH at today using Sep 2024 LTM numbers, in our opinion wrong), the Mar 2025 print slated by July / August should drive MATH towards ~$7.5 - 12.5 USD per share, another 2-3x from here.

The good thing is that we previously thought 2025 should be a tough comp year — but with now BTC graduating and more ETFs coming, there’s a real possibility that the Mar 26 Fiscal year could be a good one for Metalpha also. Anecdotes suggest significant interest from family offices on both BTC itself and crypto equities (one can ask around the $CRCL interest) — so any growth at all w/ solid operational leverage can bring upside to Mar 26 numbers. For instance, if MATH can achieve 50 mm of revenue, 50% margin + 3 mm of OpEx cost = ~55 cents in EPS. or close to 14 USD per share.

We haven’t counted the cash reserve yet but one may want to include ~30 mm USD of cash on balance sheet for the EV calc, adding close to $1 USD to the upside. Don’t think the company will use that treasury to buy crypto but optionality remains.

B. Upgrading the C-Suite — probably even more best-in-class in Asia.

Metalpha since our last report upgraded their C-Suite. Aside from the bigger trader & Sales hires (all from TradFi in ibanking and S&T in China), they managed to bring on folks like Pengyuan Fan as their CFO — a real guy btw @ RBS / UBS, and very importantly the CEO Adrian’s wife Xisha Hu to head the core division.

For those who don’t know China TradFi, Xisha Hu (胡錫莎) from Huatai Securities (华泰证券) is actually kind of a big deal in the structured product business. She built the exotics division @ Huatai over the years into one of the most profitable businesses on the street w/ leading market-share (Often #1 in flow and/or PnL). Allegedly she had been part-time advising Adrian and the business over the past 2-years, but having her committing full-time will be a big boost in driving the business in 3 ways:

1 is that her joining brings attention & network / AUM directly to the Metalpha business, the existing slate of Family offices / HNW are already Hu’s clients — onboarding should be easy over lunch / dinner conversations and accelerates Metalpha’s growth; 2 is that Metalpha will be able to expand into ancillary higher-take rate businesses with her help, and 3 is that the customers & potential hires on the fence may be more willing to sign on given the more serious leadership bench Metalpha attracted.

We also suspect the recent run, aside from the crypto stocks market being hot, partially attributable to the mainland capital noticing her jumping ship to this small-cap Nasdaq listed crypto company.

C. Strategic Premium remains missing despite deal dynamics in the industry

We are honestly a little surprised by the lack of strategic premium being baked into the stock given recent events in the industry:

• Coinbase takeover of Deribit for 2.9 Bn — Deribit is the largest crypto derivative platform.

• FalconX acquisition of Arbelos — Arbelos is a options broker in crypto

• Recent listing & M&A deals such as Amber, Antalpha, eToro, Hidden Road, Bitstamp,

Aside from the IPO window being open, it’s clear that the crypto / stock businesses are not only looking at getting into each others’ turf, but also beefing up margins / horizontally expanding into the derivative business. We highly suspect that derivative platforms like SignalPlus and Primes like FalconX + LTP are up for sale at the right bid — but more importantly we feel that Metalpha is an excellent tuck-in acquisition for firms like Galaxy and/or crypto-friendly iBanks (like Cantor) to get into the crypto exotics business + acquiring a huge slate of Asian clients.

We can’t really speculate on what the premium might look like, but trading at growth multiples of 20-25x PE doesn’t seem to bake in much of it. It’s possible that the Bitmain / Antalpha tie-up would mean a strategic separation and could cause more trouble than not, but we also believe another highly strategic buyer could bring more synergies than the issues created. While we don’t believe Adrian + Xisha are putting the business up for sale, we feel that the market should at least reward the company with some premium given their advantaged positioning in this niche. Another smart idea would probably be to do a highly priced OTC placement of converts with highly strategic players who can bring significant business.

Despite of more listings of crypto companies, we continue to believe that MATH has some of the strongest fundamentals w/ tailwinds as compared to the NAV game from Microstrategy-look-alikes, very highly-valued, low-flow-high-FDV type players, and poor business models such as the miners. Of the exception such as COIN / HOOD / CRCL, etc, MATH’s strong dominance in its niche + rare APAC exposure remains a very interesting microcap diversifying bet for folks who are looking to put on crypto exposure (but in a way one can justify the business + valuation).

Standard risk factors clearly exist re: desk risk, cycle risk, APAC risk etc. But figure it’s a good time to update ahead of the FY24 earnings in 1-3 months.