S21 Pro Miners And HPC Hosting Will Expand Capacity

Key Takeaways

• Strategic expansion and infrastructure upgrades aim to improve Bitcoin mining efficiency and boost high-margin HPC hosting revenue.
  
• Selling the Nautilus Cryptomine venture refocuses resources on scalable hosting, securing long-term revenue growth through significant data center contracts.
  
• Record network difficulty, upcoming Bitcoin halving, high power costs, and rising expenses threaten profitability, while hosting delays and repeated losses raise sustainability concerns.

Catalysts

Operates as a digital asset technology company in the United States.

• The integration of new S21 Pro miners and completion of miner building 5 is expected to increase TeraWulf's hash rate to 13.1 exahash per second, improving fleet efficiency and potentially boosting Bitcoin mining revenue and EBITDA.
  
• The successful sale of the Nautilus Cryptomine joint venture has freed up capital to accelerate the build-out of the HPC hosting business, potentially increasing future earnings through higher-margin, long-term contracts.
  
• Expanding the Lake Mariner site with infrastructure capacity up to 750 megawatts supports the scalability needed for Bitcoin mining and HPC hosting, likely impacting revenue growth positively.
  
• The strategic focus on HPC hosting, including a newly secured 72.5-megawatt data center lease with Core42, is expected to provide over $1 billion in revenue over 10 years, significantly boosting average annual revenue.
  
• Ongoing site acquisition efforts, particularly the integration of the Cayuga site, are expected to expand capacity further, with plans for additional megawatts over the next few years, potentially enhancing revenue and cost efficiency.

TeraWulf Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TeraWulf's revenue will grow by 64.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -51.7% today to 25.3% in 3 years time.
• Analysts expect earnings to reach $157.6 million (and earnings per share of $0.44) by about April 2028, up from $-72.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.3x on those 2028 earnings, up from -11.9x today. This future PE is greater than the current PE for the US Software industry at 29.7x.
• 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 9.05%, as per the Simply Wall St company report.

TeraWulf Future Earnings Per Share Growth

Risks

• Record network difficulty and the anticipated Bitcoin halving in April 2024 could decrease Bitcoin mining profitability, potentially impacting company revenue and net margins.
  
• Elevated power prices in December and January were noted as abnormally high, with future power costs uncertain, potentially affecting net margins and operating costs.
  
• A significant increase in SG&A expenses, largely due to stock-based compensation and increased staffing, could pressure net margins if not offset by similarly significant revenue growth.
  
• Delays or complications in executing high-performance compute (HPC) hosting contracts, including reliance on customer Core42’s decisions, could impact the expected revenue growth from HPC leasing agreements.
  
• The company reported a GAAP net loss of $72.4 million for 2024, closely mirroring the previous year's loss, which raises concerns about the ability to achieve sustained profitability and positive earnings.

Valuation

• The analysts have a consensus price target of $7.85 for TeraWulf 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 $10.0, and the most bearish reporting a price target of just $4.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $622.4 million, earnings will come to $157.6 million, and it would be trading on a PE ratio of 30.3x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of $2.25, the analyst price target of $7.85 is 71.3% 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.