Bitdeer: Too Early To Tell On This SPAC Merger Miner

Summary Bitdeer is the latest Bitcoin miner to joint he public markets after listing via SPAC merger last week. The company operates a blended business model that generates revenue from self-mining, compute hosting, and cloud mining. At the end of June 2022, Bitdeer had about $334 million in cash and crypto. The Bitcoin ( BTC-USD ) mining industry has yet another organization that has entered the public markets. On Friday, Singapore-based Bitdeer Technologies Group ( BTDR ) went public via SPAC merger with Blue Safari Group Acquisition Corp. The combined company now trades on the Nasdaq ( NDAQ ). While it is yet another BTC miner with a 9-figure market cap, Bitdeer is a very different type of business from what we've previously seen from other Bitcoin mining names in the public equity markets. Mining Model Rather than running a fully integrated business like Riot Platforms ( RIOT ) or an asset light model like Marathon Digital ( MARA ), Bitdeer has more of a blended approach where it self-mines, offers hosting services, and provides cloud mining at the consumer level. It's a bit like combining the models of Riot, Compute North, and StormGain all under one company. Bitdeer provides these services through 5 different data centers that are located in Washington, Texas, and Tennessee, with two more in Norway. The Texas and Norway locations are leased while the company owns the Washington and Tennessee properties: Global Footprint (Prospectus, Page 207) As of the end of June 2022, Bitdeer says to have 522MW of capacity in use with 452MW under construction and an additional 400MW planned. At the end of January, Bitdeer stated 16.2 total EH/s capacity: Hashrate As of 1/31/23 Proprietary 4.1 EH/s Hosting 12.1 EH/s Source: Prospectus, page 143 Of that total 16.2 EH/s mining capacity, 4.1 EH/s is used for self-hosting and 12.1 EH/s is used for providing hosting services to other companies and to consumers. Company filings That level of self-hosted mining made Bitdeer the 7th largest publicly traded miner by EH/s at the end of January 2023. This puts Bitdeer more in what I'd call the "second tier" of BTC miners based purely on that metric. Balance Sheet & Revenue From a balance sheet standpoint, all we have to go off of is the mid-year 2022 numbers. Bitdeer has nearly $331 million in cash, $3.1 million in cryptocurrencies, and a total of $659.7 million in assets against $342.4 million in liabilities. Balances (Bitdeer) The company generally converts all of its crypto mining revenue into fiat and actually held almost no BTC on the balance sheet as of end of June 2022: Crypto balance breakout (Bitdeer) Not pictured in the table above is FileCoin ( FIL-USD ) which makes up over 59% of Bitdeer's crypto holdings. The next largest crypto holding for the company is Tether ( USDT-USD ). From a revenue breakout standpoint, it appears that proprietary mining was becoming a larger portion of the company's revenue up until last year when it went from 50.7% of total revenue for the six months ended June in 2021 to just 22.8% of total revenue in the first half of 2022: Revenue Breakout (Bitdeer) The big growth area for Bitdeer was in the cloud hash rate category. This model is interesting because the company charges an upfront fee for providing the mining services and the user then gets to keep the mining reward. For this to work long term, the user's mining reward has to be larger than the upfront cost of using the service. If crypto prices decline too far, that arrangement becomes unprofitable and the consumer stops using the service. In the company's prospectus, it noted diminished demand for its cloud hosting business last year because of the poor sentiment in the crypto market more broadly: For the hash rate sharing and hosting businesses, the demand for such products has become lower due to the relatively bearish market on Bitcoin and the crypto asset market in general. It's too early to tell if those clients have come back online with Bitcoin's recent rise above $30k but it's certainly possible. Bitdeer has estimated annual revenue at the end of 2022 to be $330.3 million compared to $394.7 million the year prior. The company attributed the decline to a decrease in the BTC price, an inability to keep proprietary mining growth inline with global network hash growth, and a decrease in the revenue from the hosted business. Something else to consider is this company only appears to have about a six month history of profitability: Operating results (Bitdeer) From 2019 to 2021, it looks like the second half of 2021 was actually negative from a profitability standpoint. Which is not a great sign in my view considering the broader crypto market was at all time highs in November of that year. As has occasionally been the case in this industry, it seems like share-based compensation for Bitdeer cut into profitability quite a bit when the crypto market was roaring in the second half of 2021. Valuation vs Peers Since this company still has less than a full week of trading action post-SPAC merger, comps to peers will be somewhat limited. But we can already see Bitdeer is getting a sizeable $745 market capitalization as of Tuesday's closing price: Data by YCharts Bitdeer is apparently worth more than Bitfarms ( BITF ) and CleanSpark ( CLSK ) combined despite no meaningful BTC position to speak of, more debt than both companies combined, and less self-mining EH/s capacity as of January 2023. The advantage Bitdeer does have over all three of those companies is an enormous cash position. Still, BTDR is trading at 2.3x book value: Data by YCharts This is a much richer valuation compared to mining peers of similar self-mining EH/s size. Even after a 33% slide from the $10 pre-merger share price, I don't think these BTDR shares are a strong value yet. Especially considering we don't have updated balance sheet financials for the end of 2022 at this time. Summary Every risk associated with Bitcoin mining generally speaking applies to Bitdeer as well. While I'm not as concerned about jurisdiction risk domestically given the company's mining properties are in states like Tennessee and Texas, I do think we need updated information before taking a stab at BTDR shares at more than 2x book value. It's certainly possible Bitdeer is managing a diversified mining business that will reward shareholders well following B itcoin's halving next year. But I'd personally wait for a couple fresh quarters of data before jumping into this one.