Business Overview and History
Forge Global Holdings, Inc. (FRGE) is a leading financial services platform that has been at the forefront of transforming the private market ecosystem. With its trusted trading platform, proprietary data, and innovative solutions, Forge has established itself as a trusted partner for companies, shareholders, institutions, and accredited investors navigating the complex and dynamic private market landscape.
Forge was founded in 2014 in San Francisco, California, with the mission of providing a trusted and accessible platform for private market participants. The company's origins can be traced back to the founders' recognition of the growing importance and complexity of the private market, as well as the need for a comprehensive solution to facilitate efficient transactions and access to valuable data insights.
Over the years, Forge has steadily expanded its suite of offerings, leveraging its deep industry knowledge and technological expertise to cater to the evolving needs of its diverse client base. A significant milestone in the company's growth came in 2019 when Forge acquired IRA Services, Inc., which expanded its custody and asset management capabilities. This acquisition allowed Forge to offer a more comprehensive suite of private market solutions to its clients.
The year 2020 brought challenges for Forge due to the COVID-19 pandemic, which impacted trading volumes and investor sentiment in the private market. In response, the company implemented cost-cutting measures and focused on strengthening its technology infrastructure to better serve its clients during this period of uncertainty.
Despite these challenges, Forge continued to grow its customer base and expand its product offerings. A major development occurred in 2021 when the company went public through a business combination with Motive Capital Corp, a blank check company. This transaction provided Forge with additional capital to invest in its platform and drive further growth.
Since going public, Forge has remained focused on enhancing its technology and data capabilities to provide its clients with a more seamless and transparent experience in the private market. However, the company has faced some legal and regulatory challenges, including a lawsuit filed in 2022 by a former stockholder representative, which was later settled in 2023.
The company's business model is anchored in three core pillars: Marketplace, Custody, and Data Solutions.
Marketplace: Forge's Marketplace business facilitates private share transactions, enabling institutions, individual investors, and private company shareholders to efficiently execute trades and access liquidity. The company's advanced platform, coupled with its extensive industry relationships and proprietary pricing insights, has positioned Forge as a trusted intermediary in the private market ecosystem. Forge operates a platform called Forge Markets that generates revenue through volume-based fees from executing private placements and secondary market transactions.
Custody: Forge Trust Co., the company's non-depository trust company, provides secure custody and asset management services to clients, empowering them to confidently manage their private market investments through a user-friendly online portal. Forge generates revenue from its custodial services through account maintenance fees, asset fees, transaction fees, and cash administration fees.
Data Solutions: Forge's data business, Forge Data, offers market participants comprehensive information and analytical tools to navigate, analyze, and make informed investment decisions in the private market. The company's proprietary Forge Price and Forge Indices serve as industry-leading benchmarks, providing unparalleled transparency and insights. Forge also generates revenue through subscription fees earned from its data products, including Forge Intelligence and Forge Pro, as well as its private company solutions.
Forge has been investing in technology and product innovations to expand access and improve the experience for participants in the private market. This includes the launch of Forge Price, a breakthrough in pricing transparency for the private market. The company believes the private market is a large and growing opportunity, driven by factors such as the increasing number of private companies staying private longer, growing demand from institutional and individual investors for exposure to private companies, and a shift towards private assets as part of diversified investment portfolios.
Financial Performance and Ratios
Forge has demonstrated steady growth in recent years, despite the challenges posed by the COVID-19 pandemic and broader macroeconomic uncertainties. As of the latest reported quarter, the company's total revenue, less transaction-based expenses, stood at $19.1 million, representing a 4% increase compared to the year-ago quarter.
The company's marketplace revenues, less transaction-based expenses, which account for a significant portion of its top line, grew by 21% year-over-year to $8.6 million in the latest quarter. This growth was driven by a 44% increase in trading volume, reaching $338.1 million. However, the company's net take rate, a key metric that reflects the percentage of fees earned on each transaction, declined from 3.2% in the prior quarter to 2.7% in the latest quarter, primarily due to a shift in the mix of transactions toward larger block trades.
Forge's custodial administration fees, another key revenue stream, remained relatively flat at $10.5 million in the latest quarter, compared to $10.6 million in the prior quarter. The company's total custodial accounts stood at 2.3 million as of the end of the third quarter, while assets under custody were $16.6 billion, both essentially flat compared to the previous quarter.
The company's net loss for the latest quarter was $18.8 million, compared to a net loss of $14.0 million in the prior quarter. Adjusted EBITDA, a non-GAAP metric that excludes the impact of certain non-cash and one-time items, reflected a loss of $11.4 million in the latest quarter, compared to a loss of $7.9 million in the previous quarter.
For the nine months ended September 30, 2024, Forge's total revenues, less transaction-based expenses, grew 20% year-over-year, driven primarily by the growth in marketplace revenue. The company's net loss decreased from $65.3 million in the first nine months of 2023 to $51.9 million in the same period of 2024.
In terms of segment performance, the Marketplace segment has been a key driver of Forge's overall revenue growth, increasing 64% year-over-year for the nine months ended September 30, 2024, primarily due to a 99% increase in trade volume, partially offset by a 60 basis point decrease in net take rate to 2.8%. The decrease in net take rate was due to large block transactions executed at lower take rates.
The Custodial Administration segment saw a 4% year-over-year decrease in revenue for the nine months ended September 30, 2024, driven by declining cash deposits, partially offset by higher interest rates. As of September 30, 2024, Forge had 2.28 million total custodial accounts.
Liquidity
Forge's balance sheet remains relatively strong, with cash and cash equivalents of $114.5 million as of the end of the third quarter of 2024. The company's working capital position, a measure of its short-term liquidity, remains strong with a current ratio of 5.37 and a quick ratio of 5.37. The company's debt-to-equity ratio stands at a conservative 0.066, indicating a low level of leverage.
Competitive Landscape and Risks
Forge operates in a rapidly evolving and competitive private market landscape, with several players vying for market share. While the company has established itself as a leader in the industry, it faces challenges from both new entrants and established players seeking to expand their presence in the private market ecosystem.
The company's success is largely dependent on its ability to maintain its technological edge, expand its customer base, and navigate the complex regulatory environment surrounding the private market. Potential risks include increased competition, regulatory changes, and fluctuations in private market valuations and investor sentiment, which could impact the company's trading volumes and revenue streams.
Forge has addressed these challenges by continuously investing in product innovation, enhancing its platform capabilities, and fostering strong relationships with its clients and partners. The company's strategic focus on data-driven insights and process automation has been instrumental in driving efficiencies and improving the overall user experience.
Moreover, Forge's diversified business model, which encompasses Marketplace, Custody, and Data Solutions, has enabled it to mitigate risks and capitalize on the growing demand for comprehensive private market services. The company's robust compliance and regulatory framework have also been critical in maintaining the trust and confidence of its clients.
Outlook and Conclusion
Forge's future prospects remain promising, as the company continues to capitalize on the rapidly evolving private market landscape. The company's strategic investments in technology, data analytics, and client-centric solutions position it well to address the evolving needs of its diverse customer base.
Looking ahead, Forge expects their marketplace revenue for Q4 2024 to be "at par or better" compared to Q3 2024. The company has noted positive trends in their leading private market indicators, such as declining bid-ask spreads and improving valuations, as they entered Q4. With the election uncertainty now behind them, Forge has expressed optimism that they will see a meaningful recovery of the primary funding and IPO markets in 2025.
As the private market continues to grow in importance, Forge's role as a trusted and innovative partner is expected to become increasingly crucial. The company's ability to navigate the complex regulatory environment, adapt to changing market dynamics, and deliver exceptional value to its clients will be key drivers of its long-term success.
Overall, Forge Global Holdings (FRGE) has established itself as a leading player in the private market ecosystem, offering a comprehensive suite of solutions that cater to the diverse needs of companies, shareholders, institutions, and accredited investors. The company's focus on technological innovation, data-driven insights, and client-centric service has positioned it well for continued growth and success in the years to come.