We look at a penny stock that has benefited from the hype around the cryptocurrency bitcoin. Vogogo makes software that lets merchants and financial firms conduct financial transactions in bitcoin or other digital currencies. The company’s stock shot up six-fold soon after it went public last fall. However, that was mostly a result of the attention bitcoin was receiving at the time. As a start-up in a new sector, Vogogo has a long way to go before it will begin turning a profit. We see Vogogo as a penny stock to avoid.
Vogogo Inc. (symbol VGO on Toronto; www.vogogo.com) makes software that helps financial firms and merchants process electronic payments that use cryptocurrencies like bitcoin. Its products aim to cut fraud and make it easier for bitcoin transactions to comply with banking regulations.
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Bitcoin is a digital currency invented in 2009 by Satoshi Nakamoto (possibly a real person, possibly a pseudonym for one or more hackers). It isn’t the first digital currency, but Nakamoto’s innovation was to use math-heavy coding techniques that allow bitcoins to be exchanged without the need for a central authority or a physical standard, like gold, to deter counterfeiters and regulate the supply.
Right now, supply is limited to about 12.2 million bitcoins.
Vogogo first sold shares to the public and began trading on Toronto in September 2014 at $0.75. It shot up to more than $4.50 a little more than a year ago, in response to the bitcoin craze underway at that time. Since then, the stock has drifted back down close to its new issue price.
Penny stocks: Revenue dwarfed by spending
In October 2014, Interac Online agreed to let Vogogo clients access its payment networks in Canada. Vogogo has also sold its software to cryptocurrency exchanges in Canada, China and Europe.
Vogogo is still in the start-up phase: in the nine months ended September 30, 2015, it lost $9.3 million, or $0.21 a share, on just $112,594 of revenue. It also held $12.1 million in cash. However, based on the rate it’s using up that cash, it will need to raise more in a year or less.
Meanwhile, bitcoin and other cryptocurrencies remain in a regulatory grey area. For example, cryptocurrency transactions are hard to track, making it easier for criminals to launder funds and evade taxes. This likely to attract government attention and is unlikely to be good for business.
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