Summary Bitdeer Technologies is showing improving earnings and growth trends. With several growth initiatives and an impressive CEO, I am looking to add to my position on material pullbacks. The Company is investing in the manufacture of its own mining rigs and mining chips, among other investments. Not being a pure play crypto miner, the Company faces material execution risks as it tries to implement its various growth initiatives. Introduction Continuing my coverage of the Bitcoin miners, in this article I am reviewing Bitdeer Technologies Group ( BTDR ) (" Bitdeer " or the " Company "). Up approximately 40% over the last six months (as of May 28th), I believe the Company is currently a HOLD. I initiated a small position in Bitdeer at the end of April (just below $5.50) as part of an "invest and investigate" strategy. In this regard, I like a lot of what I see in Bitdeer; in particular: 1) growing earnings and a growing crypto portfolio, 2) growing Bitcoin ( BTC-USD ) (" Bitcoin ") production, 3) growth initiatives and expansion plans, 4) increasing shareholder equity with very modest shareholder dilution, and 5) a CEO with a good track record, as well as a commitment to the success of Bitcoin. Notwithstanding the foregoing, the following factors are keeping me on the sideline for the moment: (1) the recent increase in the Bitdeer share price, (2) the increased costs associated with the recent Bitcoin Halving (the effects of which will be reflected in the second quarter earnings report) (the " Halving "), and (3) the execution risks associated with the Company's ambitious growth plans. Should Bitdeer pullback materially, however, I am likely to add to my position as I continue to investigate the company -- the Company being a lot more complex than pure play crypto miners. Background Per the "Investor Relations" section of its website , Bitdeer is "a world-leading technology company for blockchain and high-performance computing." According to the website, the Company provides comprehensive computing solutions for its customers, including equipment procurement, transport logistics, datacenter design and construction, equipment management and daily operations. The Company also offers advanced cloud capabilities to customers with high demand for artificial intelligence. Finally, the company is investing in the manufacture of its own crypto mining machines (or rigs), as well as the semiconductor chips for use in such machines, for its own use and for sale and lease to third parties. Founded in 2018, the Company is headquartered in Singapore. Its datacenters can be found in the United States, Norway and Bhutan. The Company's Founder and Chairman is Jihan Wu. A Chinese Billionaire , Mr. Wu is the co-founder of Bitmain, a privately owned company headquartered in Beijing, China. Bitmain designs application-specific integrated circuit (ASIC) chips for bitcoin mining. When Bitmain was thought to be going public in 2021, it was speculated that Bitmain would fetch a valuation of up to $50 Billion . Notably, Mr. Wu is also a translator of the Bitcoin whitepaper into Chinese. The Company has a workforce of approximately 200 employees, roughly a quarter of whom pursue Bitdeer's R&D efforts. Per its third quarter 2023 financial report , the majority of the Company’s revenue is derived from its three business lines: 1) Self-mining refers to cryptocurrency mining for the Company’s own balance sheet, allowing it to capture the appreciation potential of cryptocurrency, including Bitcoin. 2) Hash Rate Sharing , including the Cloud Hash Rate business. For this business line, the Company offers hash rate subscription plans and shares mining income with customers under certain contractual arrangements. 3) Hosting business is the Company's one-stop mining machine hosting solution for third party mining customers, including deployment, maintenance, and management services for efficient cryptocurrency mining. The business line first started generating revenue in the second half of 2022. By the Numbers Stock Performance As the chart below shows, since going public on the NASDAQ in April 2023 (through May 28, 2024), Bitdeer's stock performance has severely lagged the Valkyrie Bitcoin Miners ETF ( WGMI ) (the " Miners Index "). Seeking Alpha Over the past six months (as of May 28, 2024), however, as shown in the chart below, Bitdeer's stock has performed well, although it has still trailed the Miners Index. Seeking Alpha Notably, Bitdeer is included in the Miners Index , with a robust 6.06% weighting therein (full disclosure: I use the Miners Index as a trading vehicle, but sold my entire position the Friday before the Memorial Day holiday weekend). Revenue and Earnings Trends For the year ended December 31, 2023, Bitdeer reported results which compared favorably to its results for 2022. BITDEER Q1/24 2023 2022 Revenue (millions) 119.5 368.6 333.3 GAAP Net Earnings (millions) 0.6 (56.6) (60.3) Bitcoin Mined (self mining) 911 3,694 2,113 Source: Full Year Financial Report (the " 2023 Annual Report ") and Q1/24 Quarterly Report (the " Q1 2024 Report ") For 2024, revenues are tracking at a $378 million pace based on first quarter numbers, a few percent above 2023's tally. Earnings for the first quarter of 2024 did turn positive (on a GAAP basis), which is a very good development for Bitdeer. Bitcoin mined is tracking about even with 2023, which is not necessarily a bad thing given the increase in the Bitcoin price since the start 2024. That said the effects of the Halving were not felt in Q1 2024 numbers, and those effects, which will be included in the financial reporting going forward, could be material. See the Risks section of this article below for more about the Halving. Of its three major business lines, on a year over year basis (fiscal year end 2023 compared to 2022), (1) self mining revenue increased 79.1%, due in part to the company's Gedu, Bhuatan datacenter being brought on-line in the second half of 2023; (2) membership hosting revenue increased by over 200% due to capacity only starting to come on-line in the second half of 2022 (i.e., 2023 was a full year and 2022 was only a partial year so the comparison is not apples to apples); and (3) cloud hash rate revenue declined 44.1% due to a decline in subscriptions. Source: 2023 Annual Report (linked earlier) . Q1 2024 Financial Highlights Per the Q1 2024 Report (linked earlier): Total revenue was US$119.5 million for Q1 2024, compared to US$72.6 million in Q1 2023. Net income was US$0.6 million for Q1 2024, compared to a net loss of US$9.5 million in Q1 2023. Adjusted profit was US$8.4 million for Q1 2024, compared to US$2.8 million in Q1 2023. Adjusted EBITDA was US$26.0 million for Q1 2024, compared to US$18.5 million in Q1 2023. Overall, Bitdeer's revenue and earnings trends are favorable, but they might be hard to maintain and like many of the other crypto miners, the Company still has a lot to prove. Summarizing the first quarter results, Linghui Kong, Chief Business Officer of Bitdeer, commented, We sustained our growth momentum in the first quarter of 2024, as we increased our total revenue by 64.6% on an annual basis and generated a net income of US$0.6 million, despite incurring a US$14.1 million one-off incremental development expense related to our SEAL01 chip . During the first quarter we mined 911 Bitcoins, representing an increase of 65.0% from a year ago. Our strategic plan to expand our hash rate by approximately 3.4EH/s by the end of this year remains on course, and we are making steady progress with the manufacturing of our SEALMINER A1 rigs. We expect that trial production will start in May 2024.... Designs for the second-generation machines are advancing, with [roll] out potentially commencing in the second quarter of this year and wafer ordering for mass production potentially beginning in the third quarter of this year. We anticipate that these next generation miners will deliver even greater efficiency than their predecessors. In the meantime, we continue to develop our AI cloud service . The significant interest we are observing in the space reaffirms our confidence in its potential for growth. In terms of our infrastructure, construction of our Jigmeling datacenter in Bhutan started during the first quarter of 2024 . Notably, we remain on track to complete expansion of our mining facilities in Norway, the United States, and Bhutan in 2025." [Source: Q1 2024 Report. Bold emphasis added in order to highlight the Company's various growth initiatives.] Liquidity and Liabilities As is shown in the table below, as of March 31, 2024, Bitdeer has over $118 million of cash and cash equivalents on its balance sheet, along with a growing digital assets portfolio (valued at more than $25 million). Meanwhile, total liabilities of the Company have declined roughly 10% over the 15-month period ending March 31, 2024. While Bitdeer's cash position has been reduced materially since the end of 2022, I am encouraged that the company is pursuing several growth initiatives with that cash, as was highlighted in the quote from the Chief Business Officer earlier in the article. Of course, those growth opportunities do come with risks. (in millions) BITDEER Cash & Equivalents (March 31, 2024) 118.5 Cash & Equivalents (December 31, 2023) 144.7 Cash & Equivalents (December 31, 2022) 231.3 Bitcoin/Digital Assets (March 31, 2024) 26.1 Bitcoin/Digital Assets (Dec. 31, 2023) 15.3 Bitcoin/Digital Assets (Dec. 31, 2022) 2.1 Total Liabilities (March 31, 2024) 299.6 Total Liabilities (December 31, 2023) 306.8 Total Liabilities (December 31, 2022) 330.1 Bitdeer Source: 2023 Annual Report and Bitdeer Quarterly Results Filings Shareholder Equity In the table below, we can see that Bitdeer is slowly but surely creating shareholder value, and that trajectory accelerated in the first quarter of 2024 (as the price of Bitcoin rose). Period Total Equity March 31, 2024 (millions) $391.35 December 31, 2023 (millions) $332.57 December 31, 2022 (millions) $318.34 Source Bitdeer: Q1 2024 Report and 2023 Annual Report Shareholder Dilution Compared to many of the other Bitcoin miners I follow, Bitdeer, with its modest increase in shares outstanding, is shareholder friendly on a relative basis. Date No. of Common Shares Outstanding (Company) 12/31/2021 108,681,000 12/31/2022 108,681,000 12/31/2023 110,494,000 Source: 2023 Annual Report Filing (Foreign Issuer) Risks Risks of investing in Bitdeer are included in the 2023 Annual Report (linked above). Moreover, the crypto mining industry is a highly competitive industry, highly dependent on the prices of Bitcoin and electricity, and subject to anti-crypto policies and sentiment of powerful politicians, including Elizabeth Warren . The Halving has occurred and it has had the effect of (1) reducing Bitcoin's mining rewards from approximately 6.25 BTC to 3.125 BTC and (2) causing a lower hash rate, in each case, making it more difficult for the miners to generate revenue (unless the price of Bitcoin and the price of mining transaction fees rise from here); however, we will not see the true effects of the Halving until the company reports its second quarter of 2024 results. Bitdeer, as a foreign company, brings with it certain risks, including different reporting requirements than U.S. companies. In this regard, I prefer analyzing U.S. crypto miners because it is easier to track the financial data. With respect to Bitdeer, one also wonders whether its Chinese CEO needs to stay in the good graces of the Chinese Communist Party, which has been known to be unfriendly to both billionaires (e.g., Jack Ma, former CEO of Alibaba ( BABA )) and the crypto industry . With its cash and crypto portfolio, Bitdeer is not currently reliant on capital markets, but that could change pretty quickly should the price of Bitcoin decline materially, which it is known to do with dramatic flair from time to time. There is no guarantee that Bitdeer will be able to raise money in the capital markets should it need to do so. Bitdeer is a capital intensive business and depreciation of its mining machines is one of largest costs incurred by Bitdeer each year. Depreciation of mining machines is directly tied to the purchase price of these machines, the costs of which have been rising materially, particularly for the most efficient machines. As was highlighted above, Bitdeer is advancing several growth initiatives, and there is no guarantee that the Company will execute according to plan or otherwise earn an acceptable return on investment with regard to these initiatives. Conclusions Bitdeer is a complicated company, but it is executing reasonably well as witnessed by GAAP profitability in the first quarter of 2024. Moreover, from my vantage point, its growing shareholder equity without material dilution point to a company that is shareholder friendly. Nonetheless, at this juncture, I need to see the success of some the Company's growth initiatives, or for there to be a material pullback in the stock price (or some combination thereof), before I add to my position. As such, and for the reasons set forth in this article, Bitdeer is a HOLD in my view.
