CleanSpark’s Performance Lags Bitcoin, Creating A Buying Opportunity

Summary CleanSpark is a resilient BTC miner, growing its hash rate to 33.5 EH/S and targeting 50 EH/S by 2025. CleanSpark is diversifying regionally to mitigate risks, investing in mining infrastructure with the potential to reach 63 EH/S with $200mm capital investments. CleanSpark’s BTC holdings grew 260% in FY24, nearing 10,000 BTC, with plans to leverage these holdings for additional revenue through asset management and trading. CleanSpark ( CLSK ) remains one of the most resilient BTC miners on the market, growing its hash rate to 33.5EH/S with the trajectory to increase it to 50EH/S in 2025. CleanSpark has also benefited from the price growth for BTC, which now sits just shy of $100,000/BTC. Given the firm’s growth trajectory and the strong support from the incoming US President-elect Donald Trump, I have reason to believe that BTC may find stability at these higher levels. I recommend CLSK with a BUY rating with a price target of $18.75/share at 5x price/BTC holdings. CleanSpark Operations CleanSpark realized a major turning point for growth, generating $379mm in revenue for FY24, growing by 125% on a year-over-year basis. In addition to this, CleanSpark significantly improved its adjusted EBITDA margin to 65%, up from 15% in FY23, to generate $246mm in FY24. The profitability improvement was primarily driven by fleet efficiency and improved operations. Despite the halving event that took place in early 2024, CleanSpark generated 7,100 BTC in FY24, up from 6,900 in FY23. This was driven by the firm’s exceptional growth in mining machines, growing its hash rate from 9.6 EH/second in FY23 to 33.5EH/second at the end of FY24. Despite the increased hash rate, the mining operations have certainly experienced its headwinds as a result of the BTC halving event. In November 2024, CleanSpark mined 622 BTC with an ending hash rate of 33.7EH/S. This compares to 666 BTC mined in November 2023 at a rate of 10.08EH/S. Despite the higher hash rate per BTC mined, the BTC market has significantly improved when compared to the previous year, with BTC topping $100,000/BTC at the beginning of December. This compares last year’s price of ~$43,000/BTC. TradingView In addition to the strong growth, CleanSpark realized improved power costs in FY24. The average cost for power for FY24 was $0.046/kWh, down from $0.048/kWh in FY23. The firm’s wholesale electricity cost was $0.031/kWh in FY24. All in, CleanSpark’s cost to mine was $21,400/BTC for FY24. One factor to consider is that the cost has increased going into 2h24, going from $26,950/BTC in q3’24 to $36,250/BTC in q4’24. The firm did face some headwinds in q4’24 as a result of Hurricane Helene which disrupted operations at its Georgia facilities, leading to partial outage that led to a loss in revenue in the range of $2-3mm. Management’s overall model is to diversify regionally, with mining assets in Georgia, Wyoming, Tennessee, Mississippi, and New York. The basis behind this is to shield the broader operation from any downtime risk as a result of harsh weather, volatility in the power market, and grid instability. This growth was driven by CleanSpark’s investment in mining infrastructure, ordering 60,000 units in January 2024 with the option to purchase an additional 100,000 units for the same fixed rate. This investment paid off, growing CleanSpark’s hash rate to 33.5 exahash/second. Management is targeting adding an additional 3.5 exahash/second by the end of December 2024. CleanSpark added 425MW in operational power capacity in FY24, bringing the total capacity to 726MW. From a growth perspective, CleanSpark has 75MW of power contracted in 2025 with the option to increase capacity by hundreds of megawatts for its Wyoming locations as part of its mining site acquisition in May 2024 . In addition to this, CleanSpark has been opportunistic in acquiring assets. Accordingly, management noted in their q4’24 earnings call that the firm consolidated over 178MW in private asset acquisitions, adding 9 sites in September 2024. In October 2024, CleanSpark acquired GRIID Infrastructure, adding 68MW of developed infrastructure and paving the way for CleanSpark to grow its mining capacity in Tennessee to over 400MW in the coming years. As of q4’24, CleanSpark is developing 80MW of additional capacity through a greenfield project at its Eastern Tennessee location. With the expansion, CleanSpark has developed a more efficient operating environment, improving its fleet efficiency to 19 joules per terahash in q4’24, down from 28.4 joules per terahash in q4’23. Management’s broader target is to expand its mining operations to 50 EH/second in 2025. Accordingly, CleanSpark has a fixed rate for purchasing ASICs to get the firm to 63EH/second, protecting the firm from potential inflationary costs. Given the current market dynamics, primarily driven by the price of BTC increasing to over $100,000/BTC, management is pivoting its strategy from growth by acquisition to more heavily focus on organic growth. As part of their growth strategy, management made it clear that their focus will remain in BTC mining. This compares to MARA ( MARA ), a competing BTC mining company that is expanding operations to cohosting AI training and cooling technology development. CleanSpark Financial Position Corporate Reports As for CleanSpark’s growth trajectory to reaching 63EH/second, management noted that the investment in infrastructure will sum to $200mm in capital investments, not including the miners. Accordingly, CleanSpark has a fixed rate to purchase the miners to reach its 63EH/second goal. Given the growth path for CleanSpark, I’m forecasting the firm to generate $554mm in net revenue in eFY25, with an aEBITDA margin of $325mm. This growth will be driven by CleanSpark increasing its hash rate through both organic growth and private acquisitions. Given the change in administration, I have reason to believe there will be more support for the price of BTC as President-elect Donald Trump has plans to establish a national BTC reserve. This can both improve CleanSpark’s revenue generation and its book value as part of its BTC HODL strategy. CleanSpark is actively increasing its BTC holdings, growing nearly 260% in FY24 on a year-over-year basis and is nearing 10,000 BTC. Management is planning to further leverage its BTC holdings on the balance sheet, as it did in q4’24 by securing a $50mm line of credit with Coinbase. In addition to this, the firm is considering other methods of monetizing its BTC holdings, including establishing a digital asset management group within the company. Speculating on the matter, this may mean that the firm will be more active in trading BTC through the volatility, taking advantage of price premiums and discounts. The asset management arm may also be utilized to provide liquidity to the BTC ETFs in the marketplace. Risks Related To CleanSpark Bull Case CleanSpark is well-positioned to grow its operations through capital investments to add additional hash rates to BTC production in a strong BTC price environment. In addition to this, management is exploring additional value-add avenues, including a BTC asset management operation that may add an additional revenue stream through BTC lending and active BTC trading. In addition to this, the new administration is very pro-BTC, with talks of adding a BTC strategic reserve. This may potentially create a price floor for BTC and improve price stability. Bear Case BTC remains highly volatile and may not sustain these recent highs. One factor that I believe may be impactful to the price of BTC is the popularity of BTC ETFs. In the instance of a broader market correction, retail investors may use BTC for liquidity, as the market for BTC is highly liquid with many buyers and sellers. This could potentially drive down the price per BTC if a correction were to occur. Valuation & Shareholder Value Corporate Reports As of q4’24, CleanSpark has $432mm in BTC on its balance sheet. Accordingly, CleanSpark holds 8,049 BTC on the balance sheet. At the current price of $99,455/BTC, this is valued at $800mm, leading to the CLSK being valued at 4x price/BTC. CleanSpark has significantly underperformed BTC by 72% on a total return basis. TradingView Looking at CleanSpark’s growth trajectory, I believe shares have room for growth. Using an internal valuation model based on my adjusted EBITDA forecast for eFY25 and the shares’ historical trading premium, I believe shares should be priced at $18.75/share at 11x eFY25 EV/aEBITDA. Corporate Reports Translating this to the firm’s current BTC holdings and the current market value of BTC, this would price shares at 5x price/BV of BTC. I recommend CLSK with a BUY rating. Corporate Reports

Source: Seeking Alpha