Last week, Cleanspark (NASDAQ: CLSK), a publicly listed microgrid energy software company, acquired the private Bitcoin miner ATL Data Centers, LLC in a share-for-share exchange valued at US$19.4 million. While a fairly modest in dollar amount, we consider the transaction to be quite meaningful because it represents an objective data point for how investors can value Bitcoin miners.
Valuing stocks such as Bitfarms Ltd. (TSXV: BITF) or Hut 8 Mining Corp. (TSX: HUT) has been challenging to do by traditional measures, such as enterprise value (EV)-to-EBITDA or EV-to-revenue ratios. Miners have frequently displayed negative EBITDA results, as they are in early stages of growth. Moreover, revenues have trended down this year in the aftermath of the May 2020 Bitcoin halving event.
In our view, the Cleanspark-ATL transaction may more appropriately be valued on a different basis. ATL’s mining computers had a combined hash rate of 190 Petahash per second (PH/s). Bitcoin miners solve extremely complex math problems; the answer to which is a long string of numbers, called a hash. In turn, the speed at which a miner’s suite of computers can reach the answer is termed the hash rate. A miner which has a total of 1 PH/s computing capacity can create one quadrillion hashes per second.
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So, Cleanspark’s takeover price of ATL equated to a ratio of just over US$102,000 per PH/s of computing power (US$19.4 million divided by 190 PH/s) . In the table below, we calculate the ratios of the EV per PH/s of computing power of four well-known publicly traded Bitcoin miners.
| (in Millions of US Dollars, Except Hashrate) | ATL Data Centers | Bitfarms | Hut 8 Mining | Riot Blockchain | MGT Capital Investments |
| Market Capitalization | $44 | $111 | $585 | $11 | |
| Net Debt | 23 | 8 | (39) | 0 | |
| Enterprise Value (EV) | $19 | 67 | 119 | 546 | 11 |
| Hashrate (Petahash/second) | 190 | 813 (A) | 1,031 | 2,300 (B) | 80 |
| EV to Hashrate | $102,105 | $82,411 | $115,619 | $237,391 | $140,788 |
By this measure, Bitfarms is the only one of the four to be valued at an EV-to-computing power ratio below that implied in the Cleansparks-ATL transaction. In contrast, Hut 8, Riot Blockchain and MGT Capital Investments each currently trade at premium EV-to-PH/s ratios. On this basis, Bitfarms looks to be the most attractively valued Bitcoin miner of the four.
We acknowledge that this ratio alone is not dispositive. Another factor is each miner’s electricity costs. A lower cost allows a miner to utilize its computing power to win Bitcoin awards more cheaply, meaning that a given amount of computing power with access to low electricity costs is more valuable than an equal amount of PH/s capability at a higher electricity cost. However, we believe these ratio calculations still represent an important comparative measure of Bitcoin miner values.
Bitfarms’ Operating Cash Flow Has Been Positive and Fairly Steady Throughout 2020
Pressured by the Bitcoin halving event and other factors, Bitfarms’ costs have risen significantly over the past year. For example, the price that Bitfarms needs to receive on each Bitcoin it mines just to cover its variable electricity costs (the largest cost segment for any Bitcoin miner) reached US$7,500 in 3Q 2020, up from US$5,075 and US$3,988 in the previous two quarters, respectively. Despite these cost issues, the company’s operating cash flow has been positive US$1 million or more in each quarter of 2020. Similarly, adjusted EBITDA has remained positive throughout 2020.
| (in thousands USD, except Bitcoin mining data) | 3Q 2020 | 2Q 2020 | 1Q 2020 | 4Q 2019 | 3Q 2019 |
| Operating Income | ($2,841) | ($1,482) | ($1,510) | $121 | $2,107 |
| Operating Cash Flow | 1,691 | 1,009 | 1,439 | 2,691 | 1,840 |
| Adjusted EBITDA | 365 | 1,435 | 2,905 | 2,986 | 4,463 |
| Cash – Period End | 1,324 | 1,361 | 2,332 | 2,159 | 2,463 |
| Debt, Including Lease Liabilities | 24,385 | 21,929 | 21,384 | 22,186 | 21,452 |
| Bitcoin Mined | 535 | 815 | 1,087 | N/A | 834 |
| Avg. Breakeven Bitcoin Price (US$) (A) | $7,500 | $5,075 | $3,988 | N/A | $3,482 |
Conclusion
As Bitcoin mining investors scrutinize the details of the just-announced Cleanspark-ATL deal, Bitfarms’ valuation may continue to lift. The stock is decidedly cheaper than its peers in terms of an important and overlooked ratio, EV to computing power, however this one just one figure to analyze amongst a multitude of different factors.
Bitfarms is trading at C$0.68 on the TSX Venture Exchange.
Information for this briefing was found via Sedar, and Blockchain.com. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
