Summary Bitdeer offers cloud mining and AI platform services for cryptocurrency mining and high-powered computing tasks. The stock has been underperforming but catalysts, such as potential Bitcoin bull run in 2024, open up the potential for a 23% share price upside. The recent appointment of its founder, Jihan Wu, as CEO, should also benefit the company's mining business and cloud computing. Bitdeer (BTDR) is a Singapore-based technology company specializing in high-performance computing and crypto mining. Though BTDR mainly mines cryptocurrency on its own, it offers two main services for its clients - cloud mining and AI platform. Cloud mining enables individuals to rent computing power to mine cryptocurrencies like Bitcoin (BTC-USD) without needing specialized hardware or technical expertise. The AI platform allows businesses to access high-powered computing resources in the cloud, ideal for demanding tasks like AI or machine learning. The stock has been underperforming. It went public in 2021 at $9.71 but had mostly been flat throughout the following year, trading at a $10 price level. Despite reaching an all-time high of over $14 in July 2023, share performance has been highly volatile as of late. Momentum has been lacking, with a 1-year return of -13.9% and the stock trading at $9.16. I initiate my coverage with a buy rating. My modeled 1-year target price of $11.35 presents a projected 23% upside from today's price of $9. Catalyst I expect BTDR to benefit from some catalysts to drive higher revenue growth and margin expansion in 2024. In particular, I consider the potentially surging demand for Bitcoin due to two major events - the halving and spot ETF launch, the facility expansions into lower electricity cost regions, and the appointment of Jihan Wu, former Bitmain CEO, as CEO , to be the ones worth watching. revenue and gross profit (Q3 earnings report) As a start, fundamentals have been quite decent. In Q3 2023 (three months ending December 2023), BTDR delivered $87.3 million of revenue, realizing a 14% YoY growth. Despite the weakness in the cloud hash rate business, BTDR saw almost 3x revenue growth in the self-mining business. Another positive thing here is that self-mining turned profitable on a gross basis in Q3, demonstrating economies of scale and the business' sustainability. As a result, adjusted EBITDA / aEBITDA more than tripled to $28 million, enabling BTDR to realize an over 32% of aEBITDA margin - a strong profitability outlook by any standard. BTDR has also consistently managed its aEBITDA profitability over the past year. In Q3 2022, BTDR saw an 11% aEBITDA margin, which was decent as well. Meanwhile, the balance sheet is relatively strong . Despite investing over $100 million for CAPEX over the past year, cash position stood at $134.5 million while holding over $9 million worth of liquid cryptocurrencies as of Q3. In 2024, I expect BTDR to see some meaningful catalysts that will help improve its fundamentals further. First off, revenue growth and cash balance should directly benefit from the potential surge in Bitcoin price due to the halving event and the launch of a spot Bitcoin ETF. Both of these events, while creating short-lived enthusiasm as part of sell-the-news events as of late , should improve Bitcoin's fundamental and scarcity, presenting an opportunity for surging demand of the asset. operating metrics (Q3 earnings report) BTDR seems to have strategically positioned itself to capitalize on this by holding over double the amount of Bitcoin than last year, suggesting their anticipation of timely fiat conversion to realize substantial profits. Though I have no crystal ball to predict when the improved Bitcoin fundamentals will translate into market value appreciation, I am confident of the possibility of a pull-forward bull run in 2024. In the past halving periods, Bitcoin's price appreciation typically lagged behind the major milestone, effectively resulting in a bull run at least only 12 months after halving. BTC-USD (google) As we speak, BTC-USD has been on a significant momentum and already reached a 1-year high of $50k, suggesting that BTDR is currently already benefiting from its increased cryptocurrency position. BTDR held 1,085 Bitcoin and reported $9.1 million of cryptocurrencies on its balance sheet as of Q3. Assuming that those cryptocurrencies are all in BTC-USD, BTDR's unit cost of the holding would amount to $8.4k. The recent price of $50k suggests that BTDR is today sitting on an over $54 million worth of unrealized BTC-USD, up by almost 6x from the reported $9.1 million in Q3. Meanwhile, I would also expect the mining business to see further improvement into 2024, especially given the very recent appointment of Jihan Wu, who also founded BTDR, as CEO. A few of BTDR's operational activities have suggested a potential long-term margin expansion, in my opinion. For instance, BTDR's newly operational data center in Bhutan, where electricity costs are significantly lower, is expected to help maintain or even reduce electricity costs below the current average of $32/MWh. This immediate cost optimization initiative will contribute to near-term margin expansion. The under-construction Tydal data center facility in Norway should also present a significant long-term lever for optimizing electricity costs due to the immersion cooling feature. Risk While BTDR benefits from the potential price appreciation of Bitcoin in 2024, it also faces inherent volatility due to the extreme price fluctuations and evolving regulations, in my view. Recognizing this, they appear to have strategically diversified, with their non-crypto general hosting business already exceeding 25% of the business as of Q3. This segment also aligns perfectly with burgeoning AI trends, presenting a significant growth opportunity. However, proactive efforts are probably needed to boost public awareness and further expand this segment to help hedge against crypto volatility, in my opinion. BTDR with NVIDIA (Barrons) Actively pursuing partnerships like the one with NVIDIA, along with targeted marketing, could probably unlock more value for its general hosting business. I believe BTDR's future hinges on navigating these risks while capitalizing on diversification opportunities. Valuation/Pricing My target price for BTDR is driven by the following assumptions for the bull vs bear scenarios of the FY 2024 projection: Bull scenario (80% probability) assumptions - BTDR to achieve the high end of its FY 2023 analysts' estimate of $377.8 million, a 13% growth. I would also expect BTDR to see a 23% revenue growth to $463 million in FY 2024. I assign BTDR a 3x P/S, the level where it is trading today on a TTM basis, to be conservative. I expect BTDR to probably not see any meaningful multiple P/S expansion until it can project a more consistent growth across its business lines, crypto and non-crypto. Bear scenario (20% probability) assumptions - BTDR to deliver a revenue of $363 million in FY 2023, at the low end of the analysts' estimate. I also expect BTDR to realize a revenue of $381 million, a merely single-digit growth. I also assign BTDR a 3x P/S in this scenario. price target (own analysis) Consolidating all the information above into my model, I arrived at an FY 2024 weighted target price of $11.35 per share, suggesting an over 25% upside from the current price level. I rate the stock a buy. Conclusion Despite recent stock price underperformance, I initiate my coverage of BTDR with a buy rating and a 1-year target price of $11.35, representing a 23% upside. The growth opportunity is there. While Bitcoin mining remains core, BTDR's diversified offerings like cloud mining and its AI platform open new avenues for growth. Its strategic expansion into lower electricity cost region like Bhutan should help BTDR optimize its bottom line. Though volatility remains an industry-wide challenge, BTDR's proactive approach and growth potential present a compelling investment opportunity.
