Is Janover The Next Strategy? Not At This Price

Summary Janover's stock surged from $4 to $48 following a shift to a crypto-focused business model, but has since pulled back to ~$27. The company plans to transition from a small software provider to a digital asset treasury company, focusing on Solana instead of Bitcoin. Janover raised $42 million through convertible notes to acquire Solana, but the stock's current valuation is overly optimistic given the inherent risks. I rate it a Strong Sell as the stock's valuation implies excessive optimism, requiring Solana to generate significant additional value to justify current prices. Earlier this week, micro-cap software company Janover ( JNVR ) made waves by announcing a majority stake by a crypto-focused management team that intends to completely shift the company’s business model. The stock closed at $4 the day before the announcement, and then hit a high of $48 before pulling back. Shares are trading at ~$27 as of this writing, so it’s a long way off its highs. This kind of volatility is difficult to trade given the rapid movements, but if we step back and look at the plan, it is my view we’ll see prices a lot lower than $27 in the weeks and months to come. Let’s dig in. What is Janover? Janover today is an AI-powered online platform that connects commercial real estate participants to valuable data through a SaaS model. Janover claims to have over 1 million web users annually, which include multifamily and commercial property owners and developers. In addition, it says more than 10% of the financial institutions in America use its platform. Investor presentation Here’s a basic look at how the company achieves this. It is a data platform for commercial real estate, essentially, touting its use of AI as a way to enhance the value it’s providing to users. That all sounds nice, but in practice, this business is tiny . Seeking Alpha Revenue has been around $2 million annually for a few years, so we’re talking about what would qualify as a small business in the US by any measure. Janover is building its annual recurring revenue through a subscription model, rather than transactional, and that is working. Investor presentation The company’s losses are narrowing, but again, we’re talking about a fledgling software business with a tiny revenue base that hasn’t grown for years. Enter the announcement from earlier this week, and the stock chart looks like this. StockCharts The move earlier this week has already been retraced by almost half, so it appears the market is coming to its senses at least a bit. Even after the stock moved ~8X time into Tuesday’s close, it’s still only a $47 million market cap. This thing is extremely small and investors should understand the risks inherent in trading a stock this small. Big gains are certainly possible, but so are big losses. It simply doesn’t take much money moving in or out to move this stock in a big way, so if you’re interested, just keep that in mind. What happened? In short, Janover is changing its business model from one of a tiny software provider to that of a digital asset treasury company. If this sounds familiar, it’s because it is; Strategy ( MSTR ) was the first mover in this space. It also went from a struggling software business to a digital asset treasury company (Bitcoin, of course), and has seen its share price explode higher in the years since. We could argue the merits of such a move, but the returns are undeniable for Strategy shareholders. It would appear Janover is attempting to do exactly the same thing, except it is focusing on Solana (SOL-USD) rather than Bitcoin. Management states it can earn yield from staking its Solana, but also that Solana is much more volatile than Bitcoin. Management believes this volatility is a source of potential valuation premium for the stock, which I find slightly curious. Generally, investors pay a premium for quality, not volatility. Solana is indeed extremely volatile, which could lead to amplified returns, but also amplified losses. More on that in a bit. Janover is going to continue to operate its software business, but like Strategy, if the company issues a bunch and/or equity to buy Solana, the core business will be meaningless and nobody will care. That’s what happened with Strategy as the Bitcoin holding business is orders of magnitude larger than the software business. That appears to be the playbook here. Investor presentation This playbook is almost exactly what Strategy has been doing for years, and Janover is attempting to capture the premium the market has assigned to Strategy over and above its actual Bitcoin holdings, which is significant. The difference is that Janover is using Solana rather than Bitcoin. Now, as part of the takeover, Janover is going to rename itself to DeFi Development Corporation, and change its ticker at some point in the future. These moves also highlight the idea that the software business Janover currently operates is about to become completely irrelevant, and that the stock is likely to trade with Solana rather than any fundamentals. I wouldn't bother with analyzing the software business any longer. The company has raised $42 million in an offering of convertible notes to angel investors and private equity. The notes accrue interest at 2.5% per year, paid quarterly, and mature in April 2030. They can be redeemed early so long as the company’s market cap is at least $100 million on the day prior to the conversion date, which is a ~2.5X move from this morning’s price. The proceeds are being used to acquire digital assets, starting with Solana. What now? That’s the question, as investors are attempting to revalue this company based upon a complete 180 in terms of its business model. At this point, we can ignore the software business, in my view, as a money-losing business with $2 million of annual revenue simply doesn’t matter in the context of the company holding tens of millions of dollars of cryptocurrency. So let’s instead focus on Solana as a longer-term holding. StockCharts Solana has indeed produced some truly eye-popping returns. The bull run that began in late-2023 produced a move from the low-$20s to almost $300. However, that move has also mostly been given up at this point, with Solana at just over $100 at the time of writing. That’s still up huge from the 2023 lows, but enormously painful if you held at $294 and never sold. That is the obvious risk here with Janover/DevFi; there is no guarantee Solana has to go higher over time. This company is leveraging itself enormously to start, and I’m assuming if it follows the Strategy playbook, even more down the road. If it works, we could see enormous returns for shareholders. If it doesn’t, it has a very good chance of going even lower than the $4 it traded for last Friday. The bottom line The strategy that Janover is employing here has worked wonders for Strategy, so I get the logic. Without it, Janover is just a tiny, unprofitable also-ran in the fintech sector. With Solana staking, it could turn into something more. The problem is that even at $27 (or even worse, Tuesday’s close of $33), way too much is being priced in already. If the company manages to acquire $42 million (give or take) of Solana with basically pure leverage, as it has no appreciable cash on hand to fund anything, the volatility of this stock is going to be epic. Management appears to want that , but it’s something to keep in mind. Now, the only way this can work is for Solana to go up a bunch after the purchases are made, because otherwise, you just have a business with $42 million of an asset (Solana), and an offsetting $42 million liability (convertible notes). It’s not quite that simple, but that’s essentially how it works. The only way to create value is to see the value of the asset exceed the value of the liability, over and above the cost of the liability. In this case, the cost is 2.5% a year, plus the potential dilution of when they mature. At $27 per share (or $33), there is simply too much optimism priced in. Prior to the announcement, the stock was worth ~$5.7 million. Today, it’s $47 million. That implies something like $41 million of value created before anything has actually happened. Thus, in order to even justify the current valuation – forgetting about any potential upside – Janover would need its Solana stake to generate ~$41 million of additional value, or roughly double what the company is trying to acquire. No, thanks; I’m at a Strong Sell on this one.