By now, nearly everyone has heard of Bitcoin, the cryptocurrency built on blockchain technology that skyrocketed in usage and value in 2017, surging from under $1,000 per Bitcoin to over $19,000 in less than 12 months. As more merchants are accepting Bitcoin, more consumers are wondering, “Where do I get Bitcoin?” and “Where do I sell it if I want to?” What they usually find is that it’s a bit of nightmare to complete either transaction unless you don’t mind slow transactions that can include international wire transfers or tracking down one of only a few physical Bitcoin ATMs and paying their high transaction fees.
It was this opportunity to develop a solution that inspired the genesis of Netcoins, pushing the founders of the software company, the “Bitcoin Brothers” Michael and Dominic Vogel, to develop an application that can essentially turn any merchant into a virtual Bitcoin ATM. All the merchant needs is a debit machine and access to the internet, which is something nearly every one of them does today.
For these “point of purchase” customers, transactions can be made up to $1,000, with Netcoins creating a digital wallet, emailing it to the customer with their Bitcoin in it. Simply put, the transactions are faster and less expensive than online methods today and conducted in a familiar manner like any retail experience. The transaction is frictionless for the merchant, as Netcoins does all the heavy lifting with regards to compliance and inventory. Merchants are charged nothing for their part. In fact, they can earn money by selling Bitcoin.
Netcoins offers services on different verticals outside the retail space as well. Larger Bitcoin purchases can be made through private client brokerages. Financial planners can get in on the game too by using Netcoins software that allows them to make a commission by selling Bitcoin to their clients.
So how does Netcoins generate its revenue? Understand it is a resell-facing application, not a consumer-facing one. The company builds revenue by charging a minimal mark-up by industry standards (5%-8%) on virtual Bitcoin ATM transactions (2.5% commission for store) and a mark-up of 2% or 20% for white label agreements. The commission they charge gives them a competitive advantage as the typical exchange will charge 15-20% to facilitate a transaction.
Another significant competitive advantage is the company’s Canadian public listing. With many other exchanges, they are based all over the world and the set up process can involved wiring money to places such as Singapore or Hong Kong. This represents a lack of comfort and transparency. Netcoins is the only Canadian listed software that can facilitate buying and selling cryptocurrency. With this, customers have the comfort, confidence, transparency and reporting requirements of a Canadian listing.
Revenue in 2017 came from the U.S. and northward, but management foresees expansion into Europe, Africa, Asia, Latin America and the United Kingdom in 2018. To that point, the upstart’s performance has been handily topping its revenue forecast, spearheaded by substantial growth in both transactions and Bitcoins sold.
During 2017, revenue grew from C$242,891 during Q1 to C$2.63 million in Q2, C$4.31 million in Q3 and C$6.16 million in Q4, a trend expected to continue to see revenue ramp to $14.2 million during Q4 as part of a full-year forecast of $79.8 million in revenue. As it was going through its expansion across North America, the Vancouver-based company managed to maintain positive EBITDA (earnings before interest, taxes, depreciation and amortization) in each quarter of 2017, including $109,962 in Q4. Not surprisingly, the expansion overseas will take a toll, expected to push EBITDA into the red for the first three quarters this year before emerging back in the black.
The growth is as organic as it comes, especially considering Netcoins’ sales mushroomed over 2,400% in 2017 with no sales or marketing teams. Going forward, Netcoins literally has millions of potential customers ranging from financial planners and brokers to retailers to currency exchanges to private ATM companies and back again. Anywhere that money changes hands is an opportunity to establish a reseller relationship.
Being highly levered to the price of Bitcoin, the performance could very significantly. Management estimates that a C$1,000 swing upward in the price of Bitcoin will add about C$4.6 million to EBITDA this year. With Bitcoin almost $10,000 off its high hit in December, the prospects of a move upward again are certainly compelling.
Just like it was hard to get a hold of Bitcoin until recently, so it was with privately-held Netcoins. That is until March 14, 2018, when the company makes is public debut on the Canadian Securities Exchange under the ticker “NETC” as part of a reverse takeover of mining explorer GAR Limited (CSE: GL). The company plans to register its business as “Netcoins” and seek shareholder approval for a name change to “Netcoins Holding Corp.” at the next annual general meeting.
Investors will surely take notice of the market cap of the CSE’s newest cryptocurrency tech play, with Netcoins entering the public space with a market cap of about $30 million. That’s in comparison to others like HIVE Blockchain (TSX-V: HIVE, $400 million market cap), BTL Group (TSX-V: BTL, $157 million market cap), Glance Technologies (CSE: GET, $92 million market cap) and Global Blockchain Technologies (CSE: BLOC, $148 million market cap).
Led by entrepreneurs that have already executed on startups and exit strategies in the past, Netcoins has taken the headache out of Bitcoin purchases with a scalable one-stop software solution. Seemingly in no time, the company has a run rate in excess of $2 million per month and that is with about 50 virtual ATM locations / 4,000 virtual ATM locations via Flexepin (4,000+ stores sell Flexepin vouchers in Canada, which can be redeemed online instantly to buy Bitcoin).
The momentum is building behind Netcoins and it likely is only going to keep getting tailwinds as Bitcoin continues to grow in popularity and the company stamps its name all over the world as the go-to brand for buying Bitcoin fast and safely.
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