Bitdeer Technologies Group

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 2/5

A technology company focused on cryptocurrency mining, providing a range of services from proprietary mining to cloud services.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Bitdeer Technologies Group (BTDR) is a technology company focused on cryptocurrency mining. They offer mining services, including cloud hosting, proprietary mining, and miner management solutions. It is a spin-off from Bitmain, a significant player in the cryptocurrency mining industry.

  • Proprietary Mining: Bitdeer operates mining farms with its own proprietary equipment and is involved in Bitcoin mining.
  • Cloud Hosting: The company offers hosting services for mining hardware.
  • Miner Management: Bitdeer provides software, support and repair services to its clients, enabling them to participate in mining without setting up their own operations.

The cryptocurrency mining industry is highly volatile and is affected by several factors:

  • Price Volatility: Bitcoin prices can change dramatically over short time periods, thereby directly impacting the profitability of mining.
  • Regulatory Landscape: Cryptocurrencies are subjected to government regulations. These laws can change frequently and affect operations and profitability for the company. The crypto sector is facing increasing regulations around the world that can potentially affect its operations and profitability negatively.
  • Technological Advancements: New hardware and mining technology may render older equipment less efficient, leading to obsolescence. Newer chips are more efficient and can have significant impacts on mining rewards.
  • Energy Costs: The cost of electricity is a significant component of mining and, therefore, can be a huge swing factor on operations. Bitcoin’s difficulty in mining increases over time as more and more miners come online, the result is that more energy is required to continue receiving rewards.
  • Industry Competition: The mining industry is becoming more competitive over time with an increasing number of players and larger and more efficient mining operations being constructed.

Competitive Landscape

The cryptocurrency mining space is highly competitive, and Bitdeer is exposed to many other firms that also offer similar services. The market is also relatively new and rapidly evolving. The company does have some notable differentiators such as:

  • Proprietary Technology: Bitdeer uses its proprietary mining machines and expertise to maintain competitive cost and has developed some software features, including real-time monitoring and the ability to optimize output through data analytics.
  • Established Clientele: The company has established a clientele in the mining community, many of them that are looking for a partner. It’s a well-known operator in the space with a long experience in mining.
  • Global Presence: Bitdeer has a global presence that can provide an advantage as well by optimizing mining based on conditions in different regions such as electricity prices.

Financial Analysis

Overall, Bitdeer’s financials appear concerning. The company has not been profitable in any recent period, and is burning substantial amounts of cash in operations. Furthermore, the company’s balance sheet shows concerning levels of debt and short term liquidity concerns.

  • Revenue Trends: The company’s revenue has been growing recently, but is heavily dependent on the success of its mining business, and as such are closely linked to the price of Bitcoin and the number of machines operated by the firm. A large decline in the bitcoin price will almost surely lead to a large decline in revenues, which is something the company is aware of.
  • Profitability: Bitdeer’s earnings have been deeply negative in recent periods. The company is operating on large losses, and it’s unclear if those losses can be reduced in the foreseeable future.
  • Cost structure: The largest part of cost for Bitdeer is in the electricity used to power the mining machines. The cost of electricity is quite volatile and can increase in price with little warning or notice. Any new cost increases can materially impact profitability and future financial results.
  • Cash flows: Bitdeer has been consistently burning cash in its operations. The net cash from operating activities has been heavily negative, which is not sustainable in the long run. Bitdeer is also investing heavily in equipment, so free cash flow is also heavily negative.
  • Balance Sheet: Bitdeer’s balance sheet is concerning. Cash is very low compared to its liabilities. The company has substantial amounts of debt on its balance sheet. In addition to this debt, the company has large amounts of short-term liabilities. The company is at a high risk of defaulting on its obligations if it cannot start generating positive free cash flows in the near term.

Understandability: 3 / 5

While the core concept of cryptocurrency mining is relatively straightforward (using computing power to solve complex algorithms), the nuances and complexities of the broader industry and business are somewhat challenging to understand:

  • Technological Complexity: Understanding the specific technology behind mining operations, including hardware and algorithms is complex. While the average investor can understand this concept at a superficial level, a deep understanding is needed to really see where competitive advantages can be established.
  • Market Dynamics: The overall dynamics of the cryptocurrency market, such as the price fluctuations of cryptocurrency, regulatory developments and how this impacts the business, are hard to predict and as such can complicate understanding if one is new to this sector.
  • Financial Complexity: Due to the accounting required for intangible assets, deferred tax, derivatives and crypto, the financial statements are not straightforward for new investors. Moreover, financial metrics of the company might be complicated by the fact that is a new sector and business operations can be difficult to analyze.

Balance Sheet Health: 2 / 5

Bitdeer’s balance sheet is concerning for these reasons:

  • Low Cash Position: The cash position of Bitdeer is very low compared to its debts and short-term obligations.
  • High Levels of Debt: The company has taken large amounts of debt to finance operations and expansion. With the company generating very little cash in operating activities, they may have difficulty paying down those debts.
  • Short-Term Obligations: Many liabilities on the balance sheet have short-term maturities, and as such, they are concerning from a liquidity perspective.
  • Consistent Losses: The company has been losing money for many years. There are concerns on the ability of the company to generate positive net earnings and whether its assets will be able to generate substantial value in the near future.

Recent Concerns / Controversies and Management’s Perspective

In the recent reporting period, the CEO said “we had expected further upside in the average hashrate during the second half of 2023, however, this was not the case as a result of the overall market environment. Despite that, we also saw our business become less impacted by Bitcoin price volatility, reflecting a diversification of revenue streams”. The company has been working to improve its revenue structure and to get away from its reliance on Bitcoin prices. However, these trends need time to materialize and we have yet to see if the company can achieve sustainable profits in the future. The latest documents have also disclosed a possible delisting from Nasdaq due to the stock price being under 1$, which is a serious risk that could damage shareholder value. There have also been management changes recently with a new CFO joining the company, which could also be indicative of problems in the company and how the board has been managing the company. The latest earning calls have had management talk about the importance of cost-cutting, which further suggests the difficult situation the company is currently facing and the need to act quickly to maintain liquidity. Overall, there are major questions on the sustainability of the company’s profitability and the sustainability of the business overall.

Legitimate Risks

  • Cryptocurrency Price Volatility: The price of bitcoin is the single largest driver of Bitdeer’s revenue. This can lead to drastic swings in profitability for the company. A substantial decline in Bitcoin price can render their mining operations and facilities unprofitable and lead to a decline in revenues.
  • Regulatory Changes: Changes in the regulatory landscape might lead to restrictions, fines, or bans on cryptocurrency mining, significantly impacting Bitdeer’s operations and profitability.
  • Technological Obsolescence: If Bitdeer does not keep up with technological innovations and develop superior machines with superior energy efficiency, its mining equipment could quickly become obsolete, damaging its competitiveness.
  • Energy Costs: Unforeseen increases in energy costs might render some of Bitdeer’s mining operations less profitable or even unprofitable, which could severely impact the company’s financial results.
  • Operational Difficulties: As the company has large-scale operations in various countries, there are always risks of operational issues. Furthermore, the company might experience difficulties scaling up operations in a cost effective manner.
  • Financing Risks: Given that the company is not profitable and has a high debt load, financing may become difficult, thus preventing the company from expansion. Any credit facilities could be cancelled due to the company’s financial situation.

Business Resilience

Given the many uncertainties of the business, the company’s resilience is questionable at best. The company is not generating positive earnings or cash flows. The company also relies heavily on Bitcoin prices, and those prices can drastically change over time. Unless the management is able to find a better path to profitability and to stabilize results, the company’s business model is not really resilient.