Bitcoin Valuation Update: What is the Market Missing?



KEY POINTS
  • Management believes CleanSpark is currently trading at a steep discount to bitcoin mining comparables (2.2x forward revenue vs. 5.7x industry average). Bitcoin is a commodity, yet CleanSpark is not getting credit for its mining operation that is profitable at price levels above ~$6,000 per bitcoin and contributes ~85% margins to CleanSpark’s bottom-line.
  • The company believes the disconnect lies in the legacy energy business that receives a lower multiple than pure play bitcoin miners due to its much lower ~15% margins and slower growth rate.
  • CleanSpark believes it has a competitive moat compared to other bitcoin miners as it owns ~85% of its production capacity compared to peers who mainly rely on third-party data centers.
  • The use of “outsourced” data centers reduces mining margins and creates additional risks as any downtime equates to lost bitcoin, plus CleanSpark retains the real estate value, which could increase over time as demand grows from exited Chinese miners getting their rigs back online in the US.
  • CleanSpark also controls its own power supply with 50 MW of capacity secured and energy prices below 2.85 cents per kWh. Furthermore, the company mines with ~95% low-carbon energy today, unlike most miners, and is focused on getting to 100% low-carbon energy.
  • As of August 17, 2021, CleanSpark’s hashrate capacity exceeded 820 PH/s or 6-7 bitcoins per day, an increase of ~100% from 46 days ago.
  • Management expects bitcoin mining revenue to contribute $38-48 million in FY21. With an FY22 production target of 3.2 EH/s, annualized bitcoin mining revenue could exceed $325 million, assuming the production of 25-28 bitcoins per day and a price of $35,000+ per bitcoin.
  • Our prior content on CLSK can be accessed HERE.
OUR INSIGHTS

The Opportunities

The market for microgrids is in a long-term secular growth trend, and CleanSpark is well-positioned to capitalize on this as it offers a differentiated, vendor agnostic software and hardware solution that provides significant ROI for customers. Additionally, CleanSpark is focused on scaling its bitcoin mining operation using ~100% low-carbon energy and believes this business can contribute $38-48 million in revenue in FY21 and over $325 million in annualized revenue by September 2022. Currently, CleanSpark contributes ~1% of the global bitcoin capacity.

The Obstacles

The company is a smaller player in an industry dominated by much larger, well-capitalized competitors. CleanSpark has proven its ability to compete effectively but will need to continue to expand its sales network and ensure its technology agnostic software platform evolves with the industry. On the bitcoin side of the equation, an increase in mining difficulty rates would reduce the company’s bitcoin yield and associated revenue, and bitcoin price fluctuations would impact the profitability of the operation.

Management believes CleanSpark is currently trading at a steep discount to bitcoin mining comparables (2.2x forward revenue vs. 5.7x industry average). Bitcoin is a commodity, yet CleanSpark is not getting credit for its mining operation that is profitable at price levels above ~$6,000 per bitcoin and contributes ~85% margins to CleanSpark’s bottom-line.

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