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.
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.