Newsmax IPO Offers Lesson on Under-the-Radar Stocks Like This Cash Flow Machine
Short-term sentiment is terrible for small-caps and crypto-related names, but here's why I have a long-term view on my pick of the year for 2025.
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While the mainstream media focused on the CoreWeave CRWV IPO this past Friday, I didn’t see much chatter about the Newsmax NMAX IPO by Digital Offering. One managed to close flat on its first day of trading after pricing below range, while the other exploded 735% on its first day of trading.
There’s a lesson in this. Newsmax, now the most successful Reg A offering to IPO, maintained a tight, day-one share structure and a shareholder base loyal to the brand, and it created too much risk for market makers to attempt dark pool shorts on day one.
Where will it go next? It could hit $120 Tuesday, or it could hit $50. Heck, it might hit both. Once the Regulation A shares and private preferred offering are unlocked, this will sink back below $20, but I love the company's approach and the strategy employed by Digital Offering. We have a clear front-runner for the best-performing IPO of the year.
Under-the-radar stocks are one area where investors can still find asymmetric opportunities. Newsmax is a big media name, but I hardly saw any financial media discussing it. I view Defi Technologies DEFTF in the same light.
It’s been a tough Q1 for my small-cap pick of the year. Then again, it’s been a rough ride for most of the market. The post-Trump crypto highs have turned from euphoria to you-are-doing-what? And while I acknowledge the short-term sentiment is terrible for small-caps and crypto-related names, two categories that define DeFi Technologies, the company continues to grow revenue, attract new assets, generate cash flow, and stockpile cash and digital assets in its treasury.
Record Earnings
The company reported record earnings Monday, fueled by its huge family of crypto exchange-traded products (ETPs). ETPs are simply the foreign markets version of an ETF. DeFi reported revenues of $31.1 million and adjusted EBITDA of $14.6 million for the fourth quarter.
Numbers for the full year reached $144.8 million on the revenue side of the ledger and $80.3 million for adjusted EBITDA. Management had projected full-year revenue of $141.5 million and adjusted EBITDA of $71.4 million, so the end results exceeded expectations in a strong fourth quarter.
Despite the volatility in crypto prices, assets under management has continued to grow, up 132% year over year. A consistently growing AUM base will help offset the impact declining crypto prices could have on revenue. This is one of my key metrics since AUM yield is a consistent source of low-risk income and cash flow. DeFi has been growing this number for two years straight without fail. Additional upcoming expansion into new markets should continue this trend.
Management projects revenue of $159.9 million for 2025. I believe they’ve taken a conservative view because of the recent weakness in cryptocurrencies and stocks in general. Additionally, DeFi can grow revenue via acquisition courtesy of its strong balance sheet.
As of the end of the year, DeFi held $16.7 million in cash, $40.7 million in cryptocurrency anchored by 208.8 Bitcoin, and $37.3 million in its venture portfolio. Even with the declines since the start of the year, nearly 10% of the company’s value sits in cash, crypto, and investments.
Potential Catalysts
Aside from earnings, there are several potential catalysts for DeFi in 2025. A move from the OTC to the Nasdaq should happen in the second or third quarter of 2025, allowing more institutions, funds, and traders to take a position in the stock. Additionally, the previously announced CoreFi spinoff should take place in 2025, along with the even more exciting SolFi spinoff. I won’t be surprised if we also see another spinoff of a Top 20 token.
Like many other small-cap or crypto-related names, DeFi Technologies will require some patience in this market, but I have a long-term view of this stock and will continue to acquire a cash flow and treasury-building machine in the $2 and $3 range. If a bigger player doesn’t acquire it in the next 12 months, I expect it to become the mini-international Blackstone of ETPs.
At the time of publication, Byrne is a partner in a venture equity firm that has a business development relationship with Defi Technologies, and Byrne owns shares of DEFTF for his own account.
