DatChat, Inc. (DATS) in New Brunswick, N.J., operates as a communication software company. It develops mobile messaging applications. It also develops a blockchain-based decentralized communications platform that allows consumers and businesses to connect directly with each other. The company’s flagship product is its DatChat Messenger & Private Social Network, a privacy platform and mobile application that allows users to communicate and share with privacy and protection. DATS began trading on the Nasdaq Capital Market on August 13, 2021.

The company is advancing quickly in the NFT space. DATS recently announced that it would launch a metaverse advertising and NFT monetization platform called VenVūū and has also opened pre-sale registration for its VenVūū Dynamic Content NFT on the VenVūū.io website. In addition, the company has entered a letter of intent to acquire Avila Security Corporation and its web 3.0 patent portfolio of blockchain messaging, blockchain digital rights management, secure audio and video streaming and self-sovereign id technology. “The proposed acquisition of the intellectual property will further position our significant competitive advantage that we believe will govern key aspects of the Web 3.0 and Metaverse infrastructure,” said DatChat CEO Darin Myman.

The stock has been gaining traction on the back of DATS’ recent developments in the NFT space, gaining 46.5% in price over the past month. However, DATS shares have slumped 77% over the past six months to close the last trading session at $2.74. The stock is currently trading 85.2% below its all-time high of $18.50, which it hit on Sept. 29, 2021.

Here is what could shape DATS’ performance in the near term:

Bleak Bottom Line

For its fiscal year ended Dec. 31, 2021, DATS reported $$4,450 in net revenue. However, it reported a $10.83 million net loss, representing a substantial increase from its $0.98 million year-ago value, while its net loss per share increased 914.3% year-over-year to $0.71. In addition, its trailing-12-month EBITDA was negative $10.84 million, while its gross profit was negative $2.96 million. Furthermore, DATS’ trailing-12-month cash from operations and levered FCF came in at negative $8.45 million and $4.43 million, respectively.

Regulatory Headwinds

Regulatory bodies worldwide, including the U.S. Securities and Exchange Commission (SEC), have been trying to regulate NFTs and cryptocurrencies. The U.S. Treasury Financial Crimes Enforcement Network (FINCEN), the U.S. Commodities Futures Trading Commission (CFTC), and the Internal Revenue Service (IRS) have all been intensifying their watch on NFT transactions. In addition, the United States Department of the Treasury had stated that the NFT space could be a conduit for money laundering. Furthermore, the United States Securities and Exchange Commission (SEC) is reportedly investigating NFT creators and marketplaces for securities violations. The regulatory approach has been oscillating between a potential blanket ban or harsh restrictions. The increasing regulatory scrutiny could be a significant headwind in DATS’s NFT venture.

Unfavorable POWR Ratings

DATS has an overall D rating, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a D grade for Quality. This is justified because  DATS’ ROE, ROA, and ROTC of negative 104.80%, 52.03%, and 64.78%, respectively, compare with the 7.39%, 3.50%, and 4.78% industry averages.

DATS has a C grade for Momentum, which is justified because it is currently trading above its 50-day moving average but below its 200-day moving average.

Among the 160 stocks in the F-rated Software – Application industry, DATS is ranked #138.

Beyond what I have stated above, you can also view DATS’ grades for Sentiment, Growth, Stability, and Value here.

View the top-rated stocks in the Software – Application industry here.

Click here to check out our Software Industry Report for 2022

Bottom Line

Although the company’s recent developments in the burgeoning NFT space are exciting, increasing regulations in the digital assets market pose uncertainties. Furthermore, the company’s expanding losses are concerning. Also, considering its negative ROE, it could be best to avoid the stock.

How Does DatChat, Inc. (DATS) Stack Up Against its Peers?

While DATS has an overall POWR D Rating, one might want to consider investing in the following Software – Application stocks with an A (Strong Buy) rating: Commvault Systems, Inc. (CVLT), Rimini Street Inc. (RMNI), and Progress Software Corporation (PRGS).

DATS shares fell $2.74 (-100.00%) in premarket trading Monday. Year-to-date, DATS has declined -10.23%, versus a -4.26% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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