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CleanSpark (NASDAQ:CLSK) is a relatively unknown Bitcoin (BTC-USD) miner competing in the crypto sector. It is undergoing the same struggles its peers are going through as a result of the continual downward pressure on the price of Bitcoin, and the FUD surrounding it.
That said, the company has been able to acquire more mining equipment at bargain prices, so if can survive the low-cost Bitcoin environment it's now operating in, when the price of Bitcoin sustainably rebounds, it could potentially leverage the boost in price from the increase in the number of mining machines it employs at that time.
In this article we'll look at its most recent earnings numbers and what the future may hold for the company and its shareholders.
Most recent earnings numbers
Revenue in Q2 jumped to $41.6 million, up more than 4x from the $8.1 million generated in Q2 of 2021. Mining revenues accounted for $37 million of the total. Management attributed much of those gains as a result of investments in infrastructure and mining equipment. The remaining $4.6 million came from its energy segment, which is, in my opinion, increasingly irrelevant to the company; CleanSpark should sell that unit and use the capital for operations.
Adjusted EBITDA from the prior quarter reveals how the low price of Bitcoin has had an impact on the company's performance. EBITDA in Q2 dropped sequentially by $1.8 million, as a consequence of Bitcoin prices dropping and higher mining costs.
Year-over-year EBITDA was solid, jumping from $1.9 million last year in the same reporting period, to $22.5 million in Q2 2022. For the most part I'm discounting that because of the rapid erosion associated with weak macro-economic conditions and crypto markets.The plunge in the price of Bitcoin from Q1 2022 to Q2 2022 showed itself in the drop in net loss from a positive $14.5 million in Q1 to a loss of $170,000 in Q2. Until the price of Bitcoin sustainably reverses direction to the upside, this should be how the company performs going forward.
While the company has been finding some bargains in order to boost the size of its mining fleet, at the same time, once they're deployed, it has also increased the cost of energy. As long as the price of Bitcoin remains subdued, that will be a challenge for the company.
As for its balance sheet, the company had about $1.9 million in cash on hand at the end of March. It also held 420 in Bitcoin at the time, with a book value of a little over $17 million. Total liquidity at the end of the quarter stood at close to $90 million. It sold 720 Bitcoin in the quarter to fund operations.
Energy costs to mine one Bitcoin is about $4,500.
Growing its mining fleet and boosting Bitcoin production
In the middle of June 2022, CleanSpark announced it had "taken over an existing purchase contract for 1,800 Antminer S19 XP units..."
Per its partnership with TMGcore, it includes 257 "immersion-cooled tanks designed to improve the performance of mining machines while substantially decreasing their failure rates over long-term use."
The company expects the new machines to increase mining capacity by over 252 petahashes per second. On July 14, 2022, the company announced it had acquired 1,061 Whatsminer M30S machines that were already in the process of mining Bitcoin. It stated that is should add another 93 petahashes per second to its mining capacity once the machines are delivered over the next six months or so, starting in August.
Over the last six months the company has boosted computing power by 47 percent, with production increasing by about 50 percent during the same time frame.
Growing its mining fleet over time has started to pay off for the company, as it mined 339 Bitcoins in June, up from the respectable 312 it mined in May. As of the end of June CleanSpark held 561 Bitcoins, after selling 328 Bitcoins for an average price of $25,644 for a $8.4 million total. That was significantly under the 210 Bitcoins it sold in May for an average of $32,639, where it raised $6.9 million.As of this writing, the company said it has about 28.5k Bitcoin miners representing a hashrate of 2.8 EH/s.
Conclusion
After sifting through CleanSpark, I see the company as having no real competitive advantage over its peers, with the exception of low energy costs. Even there, the market hasn't rewarded the company for that. That could possibly be because as it adds more mining capacity those costs have been rising.
The question I ask is why I should take a position in CleanSpark when there are a significant number of competitors that attract a lot more volume? Among the eight Bitcoin miners I follow and/or have a position in, CleanSpark has the lowest volume, which generates concerns of liquidity.
Also, with lower volume it may not be able to leverage the price of Bitcoin as well as its competitors that attract a lot more interest.
Concerning the numbers, CleanSpark does okay, but in my mind, it really doesn't differentiate much from its peers, which begs the question of why take a position in the company when there are numerous other Bitcoin miners to choose from with significantly more daily volume?
A major reason I see for at least taking a small position in the company is the growing number of mining machines it's putting to use over the next six months. As it gains momentum, if the price of Bitcoin starts to sustainably rise by the end of 2022, CleanSpark would be in great position to leverage the price with its added capacity.
At the same time, if the price of Bitcoin takes longer to move up in price, CleanSpark could start to feel a lot of pressure with margins narrowing and revenue, at best, remaining level.
For these reasons, I think CleanSpark could go either way in regard to its share price, and it could lag behind competitors if its costs continue to rise and its margins to shrink.
As with all Bitcoin miners, CleanSpark will move in correlation to the price of Bitcoin. The question is whether or not that will be enough to compete against its peers. At this time, I'm not convinced it will outperform them, even though it will perform okay when the price of Bitcoin regains its upward trajectory.
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