The investment value of VIRTUAL

AI agents are a track that I am very optimistic about in this market cycle. Although the entire track is currently quiet for various reasons, there are still many projects within the track that are continuously building and improving.

Virtual is one of them.

In this article, I will attempt to analyze the investment value of Virtual from a financial perspective.

As I mentioned in my previous articles, information about the financial status of projects in the current crypto track is very scarce. Virtual is no exception. Moreover, the entire AI agent track has only recently emerged, making this information even more scarce.

The two pieces of information I found online that have some reference value are:

The first is the financial information publicly released by the Virtual team on their Twitter on December 31 last year (
https://x.com/virtuals_io/status/1874111116403761316).

This information revealed that the annualized revenue of the Virtual project at that time was $300 million. The definition of this "revenue" is unclear, and I estimate it to be income. Since I cannot find further data, we will tentatively use "income" for estimation.

The second piece is a news article published on TradingView at the end of February this year (
https://www.tradingview.com/news/todayq:1af82f429094b:0-virtual-protocol-revenue-drops-97-as-ai-agent-demand-declines/).

This news shows that Virtual's daily income dropped from $1 million on January 2 this year to $35,000 on February 27.

To estimate the intrinsic value of Virtual, we need to look at future free cash flow. To estimate future free cash flow, we can only rely on the existing free cash flow for prediction and linear extrapolation. However, the information at hand is insufficient to calculate the current free cash flow. Therefore, we can only reluctantly use "income" as a substitute for free cash flow for estimation.

Last December was the peak period for the AI agent track, so the annualized revenue of $300 million shown in the first piece of information is its peak value.

By the end of February this year, it was the low point for AI agents, with daily income of $35,000, which translates to an annualized revenue of $13 million.

I will still use 12 as the estimate for "future PE." Therefore, the "intrinsic value" of Virtual is approximately $160 million to $3.6 billion.

From this estimation process, we can see that there is a significant gap between the optimistic and pessimistic valuations of its intrinsic value.

The biggest reason for this gap is the uncertainty of the project's future development. This uncertainty can be further broken down into two aspects:

First, how will the future development of the "AI agent + Crypto" track unfold?

Second, what will be Virtual's future positioning and development within this track?

Regarding the first point, I have always been optimistic about its future development, but the uncertainty lies in whether the future application scenarios and business models of this track will be the same as what we see today.

In the Web 3 ecosystem, the current situation of this track is clearly not very good.

However, if we step outside the crypto ecosystem and look at the broader AI track, we will find that there are very few application projects that have truly found a good business model, whether in Web 2 or Web 3. Even top projects like OpenAI currently have little to show in terms of commercialization, as their subscription revenue is insufficient to support their operations.

Among all AI companies, only Nvidia, as an infrastructure provider, has a good business model.

So this may not just be a problem of the crypto ecosystem, but rather a problem of the entire AI track.

Regarding the second point, among the many AI + Crypto projects currently, Virtual is one of the few projects I see that is profitable. The vast majority of other projects, no matter how cool their described scenarios or how advanced their displayed technologies are, still show no obvious profitability, let alone boldly disclose their revenue status.

Therefore, in the current AI + Crypto track, there is significant uncertainty regarding Virtual's future revenue situation, but looking across the entire track, I also do not see many projects with better certainty than it.

We have roughly estimated the intrinsic value of Virtual, and now we need to look at its "price." Here we can only look at its token.

Regarding the judgment of the project's token value, I have expressed my views in several previous articles:

The value of a pure governance token is extremely limited; only tokens that become truly valuable in terms of rights or become essential "goods" for the project have value.

In this regard, Virtual has clearly stated that it hopes to develop its token into the currency used in the daily operations of the AI agent "nation," and has been implementing similar practices in its ongoing operations.

Whether this goal can be achieved will only be proven by time, but the effort to move towards "utility" is the right approach. Therefore, in this respect, it is much stronger than many long-established projects.

Finally, let's assess whether the current token price is overvalued.

As of the time of writing, Virtual's fully diluted market capitalization is $580 million. If we calculate based on the lower limit of the "intrinsic value" of $160 million, it is certainly overvalued. Therefore, I will not buy more. However, for such a track and such a project, I am willing to give it a bit more patience, so I will retain the token I hold.