Greenidge Generation Suffers Giant Loss on First Day of Trading

The Bitcoin mining company Greenidge Generation Holdings Inc. (NASDAQ: GREE) began trading as a standalone company on September 15, and promptly lost 58% of its value, as implied by the September 14 closing price of its merger partner shares closed at US$11.80 on that day, and since according to the merger agreement, each share was exchanged for 0.115 shares of Greenidge. The implied Greenidge stock price, as of the close on September 14, was US$102.61 (US$11.80/0.115). Greenidge stock closed at US$43.40 on September 15.

Looking at this from a different angle, if a shareholder held on to their shares through the merger, each share would be currently worth about US$5.00 (US$43.40 times 0.115). stock, which was considered a meme stock by Reddit-inspired investors for around four weeks in late August and early September, traded as high as US$59.69 intra-day on August 27.

At its current share price, Greenidge, a uniquely structured bitcoin miner because it owns a 106-megawatt gas-fired generating plant that provides cheap electricity (about US$0.022 per kilowatt-hour) for its mining computers, might still be trading above fair value. The logic behind this assumption is as follows:

Greenidge’s total shares outstanding are around 39 million, making its stock market capitalization about US$1.54 billion. The combined Greenidge and had, according to their March 2021 merger announcement, a pro forma cash (and net cash) balance of US$70 million. Therefore, Greenidge’s enterprise value (EV) is about US$1.47 billion.

Accounting for the efficiency of the state-of-the-art mining equipment it plans to purchase, Greenidge projects that its 4Q 2022 annualized EBITDA run rate could reach about US$250 million if Bitcoin prices reach US$55,000 (about 15% above current levels).

Slide from March 2021 Greenidge – merger announcement presentation

Consequently, Greenidge is trading at about a 5.9x ratio of its EV to its potential future annualized EBITDA run rate — based on possible 4Q 2022 EBITDA, which itself is based on a Bitcoin price about 15% above the current market. In comparison, Bitfarms Ltd. (TSXV: BITF) and Hut 8 Mining Corp. (TSX: HUT) already established high-quality, fast-growing Bitcoin miners — currently trade at around 5x and 7x ratios, respectively, of EV-to-current run rate EBITDA based on present Bitcoin pricing. (Note that an EV/EBITDA methodology is not the only way to value Bitcoin miners.)

On September 15, Greenidge announced that it has ordered 10,000 S19j Bitcoin mining computers from Bitmain. The computing power of these devices, which are expected to be delivered in 2Q and 3Q of 2022, is a part of Greenidge’s plan to reach the 4Q 2022 EBITDA levels discussed above.

Greenidge looks to be a fast-growing Bitcoin miner, and the stock suffered an outsized decline on its first day of trading. However, the stock still may be richly valued compared with other established growth-oriented Bitcoin miners.

Greenidge Generation Holdings last traded at US$39.70 on the NASDAQ. 

Information for this briefing was found via Sedar and the companies mentioned. 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.

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