Energy Expansion And 50 Exahash Bitcoin Mining Will Expand Capabilities

Key Takeaways

• Strategic expansion in energy-rich states and focus on scaling aims to boost Bitcoin production and future revenue growth.
  
• Holding Bitcoin with price appreciation and funded expansion increases operational leverage, enhancing net margins and cash flows.
  
• CleanSpark's reliance on Bitcoin prices, substantial debt, and energy contracts, coupled with regulatory risks, could impact their financial stability and profitability.

Catalysts

Operates as a bitcoin mining company in the Americas.

• The company is leveraging its strategic expansion in energy-rich states to support growth plans, which could lead to efficient scaling and increased Bitcoin production, likely impacting future revenue positively.
  
• Their march towards reaching 50 exahash by mid-2025 is fully funded through greenfield construction and expansion without relying on equity, suggesting a strong capital position that enhances operational leverage and net margins.
  
• CleanSpark is strategically holding Bitcoin rather than selling immediately, which, coupled with Bitcoin price appreciation, can result in substantial gains in net income if prices continue to rise.
  
• They have secured a $650 million convertible bond to invest in growth, allowing for efficient scaling and further reduction in marginal costs per Bitcoin, which is expected to improve earnings.
  
• Their focus on building an institutional-grade Bitcoin treasury strategy to manage cash and reduce growth capital cost suggests a future beneficial impact on cash flows and operational margins.

CleanSpark Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CleanSpark's revenue will grow by 37.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -36.4% today to 34.0% in 3 years time.
• Analysts expect earnings to reach $476.6 million (and earnings per share of $0.47) by about July 2028, up from $-195.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.6x on those 2028 earnings, up from -18.4x today. This future PE is lower than the current PE for the US Software industry at 42.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.39%, as per the Simply Wall St company report.

CleanSpark Future Earnings Per Share Growth

Risks

• Bitcoin mining is highly dependent on the volatile price of Bitcoin, and CleanSpark's strong financial performance is partly attributed to the recent increase in Bitcoin prices, which may not be sustainable. This volatility could negatively impact revenue and earnings.
  
• The substantial investment needed to achieve their goals, such as the $650 million convertible bond, raises concerns about CleanSpark's capital expenditure and debt management, which could affect net margins and cash flow.
  
• The company’s strategy to hold Bitcoin as a major asset on its balance sheet exposes it to significant price risk, potentially affecting overall asset valuation and financial stability if Bitcoin prices decline.
  
• Regulatory changes, although recently positive, can swiftly alter the operational landscape for Bitcoin miners like CleanSpark, potentially increasing compliance costs and impacting profitability if not favorable.
  
• CleanSpark's growth strategy heavily relies on expanding its mining capacity, which depends on securing efficient energy contracts and maintaining operational leverage; any disruptions to these plans, such as changes in energy policies or increases in electricity costs, could affect their operating margins and free cash flow.

Valuation

• The analysts have a consensus price target of $19.2 for CleanSpark based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.0, and the most bearish reporting a price target of just $14.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $476.6 million, and it would be trading on a PE ratio of 17.6x, assuming you use a discount rate of 8.4%.
• Given the current share price of $12.84, the analyst price target of $19.2 is 33.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.