Support.com Becomes Newest Meme Stock; Valuation Has Detached From Any Reasonable Metric

Support.com, Inc. (NASDAQ: SPRT), a small cap provider of customer and technical support solutions, represents the newest meme stock with a valuation that now transcends any conventional metric. The new breed of Reddit-inspired investors seems to have discovered this stock in August, pushing it from around US$7.50 on August 1 to as high as US$59.69 intra-day on August 27. It currently trades at around US$37.50, which equates to a stock market capitalization of US$900 million.

On March 22, a private Bitcoin miner, Greenidge Generation Holdings, executed essentially a “do-it-yourself” SPAC transaction by merging via a share-for-share deal with Support.com. Support.com shareholders are expected to vote to approve the merger with Greenidge on September 10. 

The merger is expected to close in late 3Q 2021. 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, could achieve an annualized EBITDA run rate of US$250 million by 4Q 2022.

Aside from already being a publicly traded company, Support.com’s principal attribute to Greenidge is the US$33 million of cash on its balance sheet (and no debt). This cash balance, together with the US$37 million of cash on Greenidge’s balance sheet, brings the combined company’s pro forma cash (and net cash) balance to US$70 million.

Under the terms of the merger agreement, Support.com will own about 7.7% of the combined company. Factoring in all options and restricted shares, Support.com’s total shares outstanding are 24.203 million. The exact exchange ratio will be determined using its ten-day VWAP prior to the merger close.

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 (15% above current levels).

The only way to invest currently in Greenidge is to buy shares in Support.com. At Support.com’s current US$37.50 share price, Greenidge’s implied post-closing valuation is around US$11.5 billion.

Note that when Greenidge/Support.com created this chart in March 2021, the companies never contemplated a Support.com share price as high as it is now.

That means that Support.com’s stock market valuation assumes that Greenidge is worth about 46x EBITDA on its potential future annualized run rate cash flow (US$11.5 billion divided by US$250 million). In comparison, Bitfarms Ltd. (TSXV: BITF), an established, high-quality, fast-growing Bitcoin miner, currently trades at about a 5x enterprise value-to-current run rate EBITDA. This valuation differential is far too wide and is not sustainable.

It appears that investors which have recently purchased Support.com are counting on a continuing short squeeze. As of August 13, 6.2 million of its shares were shorted, representing about 25% of shares outstanding and perhaps two-thirds of the float. In this way, Support.com may be considered a classic meme stock, as a key tenet of such investing seems to be that a short squeeze will cause a stock to run regardless of its (extended) valuation.

Current owners of Support.com could potentially benefit from a further short squeeze, but investors should note that trading volume totaled 166 million shares on August 27, equivalent to nearly 700% shares outstanding. In the meantime, its valuation looks very extended. 

Support.com last traded at US$37.50 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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