GBOX — $40 Target in 2021

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Executive Summary

Greenbox POS is a disruptive financial tech company that improves the speed, flexibility and security of payments using their patented blockchain settlement technology stack. Today it traded last at $14.19 on its first day on the Nasdaq. I estimate it will be worth at least $40.00 a share by Dec 31, 2021. I bought shares from $12.00 to $14.27 today.

Valuation

Valuation, valuation, valuation. We always have to start here. Greenbox POS is a trendy (blockchain) company that appears to me to be growing revenue 150% per year organically. It is my belief this will fetch a P/E of 100 now that is on the Nasdaq, especially once Q1 is reported on in May.

On Feb 1, 2021 Greenbox projected a 2021 of $45M revenue / $18M net income. Based on this $18M net income I get $0.45 a share EPS on 40M shares. I slap on the 100 P/E and get a target of $45 a share.

Guidance for FY 2021

Sandbagging

When speaking to investors you need to “Underpromise and overdeliver”. Always. I believe Greenbox got the memo on this — yay!. The Feb 3, 2021 conference call indicates Greenbox processed $84M of transactions in December 2020, and $130M in the entire Q4 2020. December 2020 was 2.5 times larger than the previous record month.

In the Feb 3, 2021 conference call, management indicated that January 2021 transaction volume was going to be near or better than the record December 2020 transaction volume. What this tells me is that this new level of transaction volume was not just Holiday 2020 volume, it is sustainable!

If $100M of transactions equates to $7M of revenue, then the January 2021 run rate of $80Mish transactions would get us close to $5.6M revenue (7%) and $2.4M EBITDA (3%) if it all occurred on the Gen 3 platform, which hopefully it will in a few months. If we annualize $5.6M * 12, we already come up with a revenue number substantially larger than the $45M annual revenue. And this is February. A lot of new clients can come on board this calendar year. So yes — I think the guidance is conservative and they are sandbagging (which I love)!

Generation 3 Platform

This quarter, Q1 2021, Greenbox is launching their Gen 3 platform. There are some big advantages for customers, such as blockchain provenance, real time payment, and ease of on-boarding. It also allows for the settlement of transactions in stable-coins, which the US government is now allowing banks to do as of Jan 4, 2021. I got the impression Greenbox is aggresively gaining customers because of how much the payment processing ecosystem loves this newly launched product.

The advantage for investors is the “cost of sales” decreases and therefore Greenbox profit margin goes way up with the Gen 3 platform. Net revenues go from 2% of transactions processed to 3% of transactions processed.

Greenbox is cooperating with major banks on settling transactions using stable-coins, allowing blockchain proof of transaction. They are hoping to be first to market with this technology.

Near Term Catalysts

One catalyst I find likely is that a major research house covers Greenbox with a “Strong Buy”. Greenbox just raised $40M, and this customarily comes with analyst coverage eventually. Positive coverage might move the price.

Completing the acquisition of payment processor ChargeSavvy would be a major leap forward as well. Pre-pandemic ChargeSavvy was predicting a 2020 with $1.1B of transactions and netting $25M from that. Post-pandemic ChargeSavvy is processing $400M of transactions and netting $13M from that. Adding $13M of net income for 8% dilution of 2.5M shares would be very, very accretive to earnings. As ChargeSavvy’s biggest customers, restaurants and bars, recover customers post-vaccine we can hope ChargeSavvy might get back to the $1B run rate on transactions and grow its business as well.

Greenbox Gen3 enables Visa / Mastercard cards where the balance can either be paid via fiat currency or cryptocurrency. This is exciting. I don’t know how much adoption there will be, but Greenbox may stand alone in being able to enable this capability for payment processors.

Summary

Greenbox POS says they have no competition in this space. Their one competitor went belly up due to a lack of funds. I like the risk / reward a lot. Look at the press releases for the last 45 days. This company launched a new product, worked towards a lucrative acquisition, partnered with Visa, raised $43.6M, and uplisted to the Nasdaq. This company is executing in spades. Today’s valuation at $14 is around a 30X P/E on projected 2021 net income of $18M. This is a bargain price for a flat out gem of a company in a hot space, executing, and growing very quickly. See how GBOX fits into my portfolio in “Portfolio Update — Feb 2020”.

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