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One of the newest Bitcoin (BTC-USD) miners available to investors in the US stock market is Bitdeer Technologies Group (NASDAQ:BTDR). The company takes a blended approach that derives revenue from three main sources; Self mining, hosting and hash rate sharing. Since My initial coverage After selling the stock in April, we received first quarter 23 results and a share buyback announcement that helped take the stock from under $7 at the time of publication to just under $13 per Stock doubled in early June.
Data from YCharts
This surge in share price has catapulted Bitdeer to a market cap well over $1 billion. BTDR is now the third largest public miner in terms of market cap. In this update, we take a look at one of the company’s core revenue segments and what might be driving this price action.
Q1 Earnings Outlook
In the Bitdeer Q1 result reportThe company reported revenue of $72.6 million for the quarter — industry revenue second only to Riot Platforms’ $73.2 million (REVOLT) in the quarter. However, Bitdeer’s operating loss for the quarter was Only $10.4 million, significantly better than Riot’s $66.4 million loss and better than smaller industry peers like Cipher (CIFR) and hut 8 (HUT) as well as:
Data from YCharts
A gross profit of $13.5 million on revenue was offset by $18.4 million in SG&A expenses, of which $12.3 million was stock-based compensation. However, given the company’s operating loss compared to its peers with similar revenue numbers, Bitdeer’s performance is significantly better in comparison. The company appears to have benefited from a more diversified business model that pulls well across all of Bitdeer’s revenue segments.
- $13.2 million from self-mining
- $18.0 million from cloud hash mining
- $22.1 million from general hosting
- $16.5 million from member hosting
Compared to Q1 22, total revenue fell 19.7% year-on-year. The company attributes this loss to falling bitcoin prices and a drop in cloud hash mining orders. The largest decrease in each segment was in the cloud hash mining segment. That was down 55% from $40 million a year ago. I suspect that the business segment’s decline more than the others is due to the unprofitability of the arrangements for some of the company’s cloud hash customers.
The interesting message of the Q1 report comes from how the company’s proprietary hash number turns out. Of the 18.3 active EH/s as of March 31, 5.7 are proprietary – or unhosted. Of the 5.7 proprietary EH/s, 3.9 are used for self-hosting and 1.8 for the cloud hash rate business. This means that 1.8 EH/s in cloud hash generated $18 million in revenue for Bitdeer, while 3.9 EH/s in self-mining generated only $13.2 million.
In reading some online reviews of the service, I came across many examples of experiences that say something similar to this quote from a YouTube review last year:
The first plan I bought was a 30 day plan. It cost me around $180-185 in total and I got back around $150.
That’s not a winning formula for cloud hash buyers, and anyone with a smaller cloud hash plan might be better off just buying BTC outright than betting on mining returns. It seems reasonably obvious that selling the company’s hash rate is a more profitable business than actually mining it with the machines. With that in mind, I could see keeping more of their own mining capacity for the company if Bitdeer were actively trying to grow a BTC treasury. However, this does not appear to be the case.
balance sheet
While the cloud hash business appears to be more profitable, Bitdeer retains more of its own self-mining capabilities but lacks a significant cryptocurrency hoard. Although crypto holdings have more than doubled since the end of 2022, this doubling comes from a low starting point:
financial assets (Bitdeer)
There is a large cash stash of $173.9 million on the balance sheet. The company only holds $4.5 million in cryptocurrencies and as far as I can tell, no breakout of these holdings was indicated in the first quarter report. However, the company’s prospectus previously featured a large allocation to FileCoin (FIL-USD), which was recently classified as an unregistered security in the SEC lawsuit against Binance.
liabilities (Bitdeer)
On the other hand, the company has total liabilities of $315 million; Most of this is deferred income.
Share Repurchase Plan
On June 16, Bitdeer announced a $1 million share buyback program that will last until September 15 of this year. Reaction to the announcement was significant as the company’s stock rose from a close of $7.56 on June 15 to $11.41 the following day. Given the company’s market cap of $841 million on the 15th, this was a pretty ebullient reaction to such a small share buyback deal, and is likely due to BTDR having one of the smaller floats in the industry:
| BTDR | REVOLT | MARA | HUT | CIFR | CLSK | |
|---|---|---|---|---|---|---|
| Outstanding Shares | 111.29 million | 178.16 million | 169.97 million | 221.28 million | 248.94 million | 112.69 million |
| Hover % | 24.38% | 95.32% | 99.42% | 99.34% | 16.58% | 95.69% |
| Insider Stocks | 84.16 million | 8.33m | 989.05K | 1.47 million | 5.74 million | 4.85 million |
| insiders % | 75.62% | 4.68% | 0.58% | 0.66% | 2.31% | 4.30% |
click to enlarge
Source: Seeking Alpha
With a free float of just 24.4%, BTDR shares have the potential to be more volatile than many of the other BTC mining stocks. For example, consider the 50% intraday price movement on June 16 after the announcement of the buyback plan. This move came with a share volume of just 712,000 shares — or just 2.6% of the free float and 0.6% of the shares outstanding. In comparison, RIOT generally trades between 10% and 15% of the company’s outstanding shares in a normal session.
Additionally, the idea that the company would be buying back shares at this point is a bit confusing. I would understand better if BTDR shares were trading well below book value or if there was a significant level of positive earnings that the market does not respect. Neither seems to be the case here.
Insights for Investors
Bitdeer is a fairly unique mining company in the public stock markets as it has a fairly balanced revenue split from multiple different streams. It has plenty of insider holdings and a management team that appears to have incentivized higher share prices. However, I doubt how sustainable the cloud hash rate business is over the long term. Cloud hash appears to be a more profitable use of the company’s proprietary hash rate, but at the expense of Bitdeer’s customers. I think that shows that the segment is down more than 50% over the past year.
The churn in this category is not unexpected given the wildly different mood in Bitcoin from early 2022 to early 2023. It’s possible that cloud hash earnings will surge again if the price of bitcoin rises once more and bitcoin retailers try to get back into the mining action. There’s an argument for selling shovels during the gold rush. I’m just not sure I would consider BTDR stock as an investment given the potential for volatility this small free float name brings.
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