Bitdeer: Sell The $1 Billion Shelf

Summary Bitdeer Technologies has delivered a 220% rally in four months, outperforming most Bitcoin mining stocks this year. Despite recent gains, a new $1 billion mixed shelf offering could lead to significant dilution and potential underperformance. Previous capital raises include $150 million in August and $400 million in late-November private placement notes show the company’s willingness to raise. Even without the shelf, BTDR is trading at a massive book value premium to most mining stocks and the broader revenue trend is not a good one. Bitdeer Technologies ( BTDR ) has been one of the best performing Bitcoin ( BTC-USD ) mining stocks this year. After only TeraWulf ( WULF ) and Core Scientific ( CORZ ), no other mining stock has generated a better year to date return than BTDR. But the 102% year to date return for BTDR really doesn’t even do the stock’s recent rally justice. Since I last covered the name for Seeking Alpha in August, BTDR shareholders who ignored my ‘hold’ call and bought the stock under $7 have been handsomely rewarded with a face-ripping 220% four month rally. Data by YCharts Well done, bulls. This is why I try to avoid outright ‘sell’ calls on stocks even if I feel there are valid fundamental issues. Attachment to Bitcoin can make any stock volatile and mining stocks are possibly the best example of Bitcoin-adjacent volatility. I’m making an exception today. For Bitdeer specifically, there is now a very large overhang on the stock that, I believe, will shift BTDR from a position of brief sector out-performance to one of under-performance for the foreseeable future. That overhang in a word, dilution. The Shelf Offering Just four months ago the company issued $150 million in senior notes . More recently, Bitdeer announced $360 million in convertible notes that pay 5.25% in a late-November private placement. The company disclosed the closing of that offering at $400 million during its November production update. Now we have the prospect of yet another capital raise, and this one is bigger than the other two combined. On December 11th, Bitdeer filed a prospectus to raise $1 billion through a mixed shelf offering that could include common stock, debt securities, and/or warrants. Data by YCharts While we don’t yet know when this offering will begin or the pricing of any equity issuance, the prospect of a $1 billion capital raise could mean significant dilution for current shareholders at a $3.6 billion current market capitalization. Consider, the closing price of Bitdeer common shares was $18.90 when the prospectus was filed. At $21.37 on December 12th, BTDR shares are trading at nearly 7x book value. Compare this with large mining peers: Data by YCharts Bitdeer’s price to book value is running 3 to 4 times other miners in the sector. The only conclusion I can draw from this is that BTDR is wildly overvalued compared to the rest of the large public miners. Frankly, it would be shortsighted for the company to not tap the spigots at these share price levels and capture some of the implied value in the equity by issuing common stock shares. Thus, I suspect they will do so and likely rather soon. Retail Hype and SEALMINER Expectations BTDR Daily Chart (TrendSpider) There is admittedly quite a bit of excitement in the market about BTDR at this point in time. Based on both the spike in percentage of trading activity and some of the postings I’m seeing on places like X and YouTube, Bitdeer has been generating quite a bit of buzz with retail traders over the last few weeks. Much of the hype is likely a result of Bitdeer’s SEALMINER A2 machine which apparently has just under 1.4 million reservations already booked. SEALMINER Reservation Page (Wayback Machine) Though I think it’s important to point out that 99 cent reservations without KYC do not necessarily mean there will be 1.4 million SEALMINER orders when it’s all said and done. I think it’s also interesting that the Wayback Machine is indicating that there have only been about 40k new reservations since late July even though the price of Bitcoin has essentially doubled over the same time frame. Ultimately what matters is whether or not Bitdeer turns these reservations into revenue growth. Because Q3’s numbers show a continuation of a concern I’ve laid out in prior pieces covering the company. Revenue Story For the quarter ended September, Bitmain reported $62 million in top-line revenue. This was a 37% sequential drop from $99.2 million in Q2 and a 29% year over year decline from $87.3 million in Q3-23. Data by YCharts More importantly, for the third consecutive quarter Cloud Hash Rate revenue has declined. At the reported $7.1 million, Cloud Hash Rate generated just 11.5% of Bitdeer’s top line revenue in Q3. For context, Cloud Hash was Bitdeer’s primary revenue driver for much of 2022 before falling drastically last year. Analyst’s Chart, Bitdeer Filings Self-mining now accounts for just over 50% of the company’s total revenue. This is potentially a concerning long term trend because self-mining happens to be bad for gross profit as the segment lost $3.2 million in Q3. Q3 Revenue Breakout (Bitdeer) Cloud Hash Rate continues to be the best moneymaker for the company on a gross margin basis and yet revenue from that segment declined by 55% year over year. The only segment that generated year-over-year growth for Bitdeer was self-mining. Which, again, is a problem because the segment hasn’t been profitable for the company following the block reward halving. Bitcoin Production Of course, markets are supposed to be forward looking and higher Q4 Bitcoin prices should drive revenues for Bitdeer. The company had 17.1 total hash under management in Q3. Bitdeer’s November production update showed 20.7 EH/s under management with 8.2 of that hash allocated to self-mining. Analyst’s Chart, Bitdeer filings For the month, Bitdeer produced 150 BTC from that hash and 174 BTC during the month of October. November Production BTC Mined EH/s BTC per EH/s Marathon Digital ( MARA ) 907 46.1 19.67 TeraWulf ( WULF ) 115 5.9 19.49 HIVE Digital ( HIVE ) 103 5.3 19.43 IREN Limited ( IREN ) 379 19.7 19.24 Riot Platforms ( RIOT ) 495 25.8 19.19 Bitfarms ( BITF ) 204 10.7 19.07 CleanSpark ( CLSK ) 622 33.7 18.46 Bitdeer 150 8.2 18.29 Bit Digital ( BTBT ) 45 2.5 18.00 Cipher Mining ( CIFR ) 202 12.0 16.83 Source: Company filings From a BTC per EH/s standpoint, there are several public companies that are running more efficient fleets than Bitdeer. That could certainly change given some of the advertised specs we’re seeing from the new SEALMINER machine. But until we see actual performance metrics, self-mining is still potentially a headwind for Bitdeer rather than a tailwind due to it being a net income loser following the halving. To be sure, Bitcoin prices are higher than they were in Q3. But so is the global hash rate, and we’re already seeing signs that Q4 BTC production may be lower than Q3. Even if we assume Bitdeer can continue to produce at the three-month average of 163 BTC per month, the company’s stock is trading at more than 15x forward BTC sales at $100k Bitcoin price. Since half the company’s revenue comes from other segments, we can cut it down to just under 8x forward sales. Bottom line, BTDR is not cheap up here and management seems poised to take advantage of that mispricing through the shelf offering. Closing Thoughts It’s certainly true that I’ve missed a fantastic run in BTDR shares. I think traders and investors who bought under $10 have obviously made the right call by getting in before the rally. However, I think the gains have been had here for the time being. The company is going through a revenue generation transition that is a fairly large gamble. In addition to entering the HPC/AI space with the rest of the Bitcoin miners, Bitdeer’s broad revenue trend has been one of increasing reliance on the less profitable segment. Bitcoin’s price increase can theoretically help BTDR grow top line, but history shows us each halving cycle has a blow off top and then a large decline. I see a lot of hype about BTDR right now at the same time the company is hoping to raise $1 billion. It’s difficult for me to see how BTDR shares stay above $20 for much longer. I think the stock is a sell. I would not advise shorting it. But if I were long, I’d take the win.

Source: Seeking Alpha