Gemini Stock Plunges After Earnings. Bitcoin Credit Cards Are Still Going Strong.

Gemini stock was lower on Tuesday. (Bridget Bennett/Bloomberg)

Key Points

• Gemini Space Station reported a third-quarter net loss of $159.5 million, or $6.67 per share.
• The company’s revenue more than doubled from a year ago to $50.6 million, and was boosted by a 64,000 increase in credit card customers.
• Analysts remain largely bullish on Gemini, with a consensus price target of $28.70, despite increased competition and short-term risks.

Gemini Space Station , the cryptocurrency firm run by Cameron and Tyler Winklevoss of early Facebook fame, continues to fall out of orbit after its initial public offering.

Shares tumbled more than 16% Tuesday, hitting their lowest level since September’s IPO, fter Gemini reported a third-quarter net loss of $159.5 million, or $6.67 per share. Analysts tracked by FactSet expected a per-share loss of 77 cents.

Mounting expenses, particularly for marketing, are the main culprit. Gemini is investing heavily in its credit card business, which offers users rewards in numerous top cryptocurrencies, including Bitcoin, XRP, and Solana. The company’s sales and marketing expenditures nearly doubled from the second quarter to $32.9 million, a spending spree that Gemini said reflected “deliberate investments to sustain the momentum we saw leading into our IPO.”

The good news is that these efforts are helping to boost the company’s top line. Gemini’s revenue more than doubled in the third quarter from a year ago to $50.6 million, thanks in part to 64,000 additional card customers in the quarter.

Gemini is partnering with Mastercard, which is the exclusive network for the Gemini Credit Card. It isn’t clear how, if it all, Gemini’s cards will be affected by the recent deal that Mastercard and rival Visa struck with merchants over a variety of fees. But analysts largely remain bullish on Gemini, in part due to its credit card offering.

“Gemini had the first mover advantage among other crypto cards and management noted that they believe the rise of similar card offerings helps to validate their product,” said Matthew Coad, an analyst with Truist Securities, in a report following Gemini’s earnings. Coad added that the wider breadth of crypto asset rewards offered by Gemini gives it a leg up on the competition, “helping them tap into specific cryptocurrency communities.”

Investors are nonetheless concerned by the widening pool of red ink; wage and benefit costs also soared in the third quarter. All of this spending could eventually pay off, but it’s a costly gambit in the short-term—and one that also is laden with risk due to the rise in competition in crypto and fintech in general.

Gemini has started to tout itself as a “super app,” with plans to add more products, such as trading tokenized assets, including stocks, on the blockchain. The company also said in its earnings report that it plans to get into the increasingly crowded business of predictions markets, letting users buy yes/no contracts for various political, sporting, entertainment, and financial events.

The move is part of a larger trend. Robinhood is also making a big play in tokenized stocks and predictions markets. SoFi just announced that it’s going to start offering crypto trading to customers as part of its efforts to become what CEO Anthony Noto has described as a “one-stop shop” for SoFi users.

John Todaro, an analyst with Needham, said in a report Tuesday that “it is early days and competition is already heating up in these segments.” As a result, he cut his price target for Gemini stock to $35 from $42, reflecting reduced earnings estimates and a lower price-to-earnings multiple.

Still, even after those cuts, Todaro’s price target is 145% higher than the current price. In fact, most of his peers remain bullish on Gemini, too. The consensus price target of $28.70 is more than double Gemini’s current price.

Gemini went public at $28 a share, though, so it’s worth noting that the target price is barely above its offering price. No wonder investors are fleeing for the exits. Even if Gemini’s “super app” gamble pans out, it may not be enough for Gemini to reward investors as much as its crypto credit card holders.

Write to Paul R. La Monica at paul.lamonica@barrons.com.