post_id
string | comment_id
string | comment
string | comment_score
float64 | comment_author
string | comment_created_utc
float64 | post_title
string | post_text
string | post_score
float64 | post_author
string | post_created_utc
float64 | company
string | subreddit
string | post_url
string |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1iln8nk
|
mbx8h7k
|
Thank you for being the first person to say that 35 is young age lol.
Usually on Reddit people call people 30+ as old 😂
| 8 |
himynameis_
| 1,739,142,710 |
Does it still make sense to keep “100% buy and hold” SP500 if you have enough wealth at a young age?
|
35 yo and have amassed $3.3 million in liquid investments (401k, IRA, 457b, hsa, and taxable account combined).
Does it really make sense for my situation to blindly “buy and hold” for the next couple decades?
It’s much easier to stomach volatility when you are still starting out…a -30% decline on 200K investments is a nothing burger of -60K loss…..however a -30% decline of $3.3M is a loss of $1M. Like at this point what is wrong with taking some chips off the table to try to time the market with this unprecedented geopolitical environment?
I’m a physician and the funding cuts this government is possibly going to do healthcare means my high income may no longer be as reliably high in the near future, so I can’t be sure I could make up big losses with just “working it off”
| 631 |
achicomp
| 1,739,130,199 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/1iln8nk/does_it_still_make_sense_to_keep_100_buy_and_hold/
|
1iln8nk
|
mbw3gu9
|
If you’re holding it until retirement it will always recover and maintain its upward trend. If it doesn’t…we would all be fucked anyways. Time in the market always beats timing the market. Anything else is gambling.
| 56 |
tenbytes
| 1,739,130,457 |
Does it still make sense to keep “100% buy and hold” SP500 if you have enough wealth at a young age?
|
35 yo and have amassed $3.3 million in liquid investments (401k, IRA, 457b, hsa, and taxable account combined).
Does it really make sense for my situation to blindly “buy and hold” for the next couple decades?
It’s much easier to stomach volatility when you are still starting out…a -30% decline on 200K investments is a nothing burger of -60K loss…..however a -30% decline of $3.3M is a loss of $1M. Like at this point what is wrong with taking some chips off the table to try to time the market with this unprecedented geopolitical environment?
I’m a physician and the funding cuts this government is possibly going to do healthcare means my high income may no longer be as reliably high in the near future, so I can’t be sure I could make up big losses with just “working it off”
| 631 |
achicomp
| 1,739,130,199 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/1iln8nk/does_it_still_make_sense_to_keep_100_buy_and_hold/
|
1iln8nk
|
mbxj8bu
|
I think some diversification makes sense for peace of mind. Do at least 20% foreign stocks, 20% bonds. With how absurd valuations are on US stocks, going foreign stocks/bonds might even enhance your returns.
| 6 |
skilliard7
| 1,739,146,305 |
Does it still make sense to keep “100% buy and hold” SP500 if you have enough wealth at a young age?
|
35 yo and have amassed $3.3 million in liquid investments (401k, IRA, 457b, hsa, and taxable account combined).
Does it really make sense for my situation to blindly “buy and hold” for the next couple decades?
It’s much easier to stomach volatility when you are still starting out…a -30% decline on 200K investments is a nothing burger of -60K loss…..however a -30% decline of $3.3M is a loss of $1M. Like at this point what is wrong with taking some chips off the table to try to time the market with this unprecedented geopolitical environment?
I’m a physician and the funding cuts this government is possibly going to do healthcare means my high income may no longer be as reliably high in the near future, so I can’t be sure I could make up big losses with just “working it off”
| 631 |
achicomp
| 1,739,130,199 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/1iln8nk/does_it_still_make_sense_to_keep_100_buy_and_hold/
|
1iln8nk
|
mbw7njm
|
Nice you have 3.3m is that what you want to hear?
| 37 |
RealDreams23
| 1,739,131,651 |
Does it still make sense to keep “100% buy and hold” SP500 if you have enough wealth at a young age?
|
35 yo and have amassed $3.3 million in liquid investments (401k, IRA, 457b, hsa, and taxable account combined).
Does it really make sense for my situation to blindly “buy and hold” for the next couple decades?
It’s much easier to stomach volatility when you are still starting out…a -30% decline on 200K investments is a nothing burger of -60K loss…..however a -30% decline of $3.3M is a loss of $1M. Like at this point what is wrong with taking some chips off the table to try to time the market with this unprecedented geopolitical environment?
I’m a physician and the funding cuts this government is possibly going to do healthcare means my high income may no longer be as reliably high in the near future, so I can’t be sure I could make up big losses with just “working it off”
| 631 |
achicomp
| 1,739,130,199 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/1iln8nk/does_it_still_make_sense_to_keep_100_buy_and_hold/
|
1iln8nk
|
mbwljxk
|
Yes and no. Obviously it depends on your retirement goals and how long you have until retirement etc.
I’m a few years older than you in a similar financial situation. Specific advice: hire a fiduciary to help figure out what to do. Tell the fiduciary your goals and time horizon etc etc.
What we ended up doing after meeting with a fiduciary was to continue at the 80/20 VTI+VXUS (self managed) adding equal increments every two weeks. Outside of our emergency fund (9 months of expenses) and primary residence, the VTI+VXUS makes up the majority of our assets. I also have a TDF in my 401(k) and a rental property.
When we are 15 years out from retirement we will aggressively start adding bonds and treasuries and cash to our portfolio with a goal of having 40/60 in favor of treasuries and bonds and cash when we retire but living with the volatility/risk/reward of VTI+VXUS being our main vehicle for growth until we shift to wealth preservation mode.
But having the rental property has added a nice diversification element, too.
Also, aside from the rental property which is owned by a two member LLC (me and my spouse), everything else is held in a revocable trust with our kids as beneficiaries. Getting this piece right is critical. We want their education and well being to be taken care of if we both go down in a plane tomorrow but we don’t want them becoming 18 years old millionaires for obvious reasons.
| 6 |
Rich-Contribution-84
| 1,739,135,687 |
Does it still make sense to keep “100% buy and hold” SP500 if you have enough wealth at a young age?
|
35 yo and have amassed $3.3 million in liquid investments (401k, IRA, 457b, hsa, and taxable account combined).
Does it really make sense for my situation to blindly “buy and hold” for the next couple decades?
It’s much easier to stomach volatility when you are still starting out…a -30% decline on 200K investments is a nothing burger of -60K loss…..however a -30% decline of $3.3M is a loss of $1M. Like at this point what is wrong with taking some chips off the table to try to time the market with this unprecedented geopolitical environment?
I’m a physician and the funding cuts this government is possibly going to do healthcare means my high income may no longer be as reliably high in the near future, so I can’t be sure I could make up big losses with just “working it off”
| 631 |
achicomp
| 1,739,130,199 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/1iln8nk/does_it_still_make_sense_to_keep_100_buy_and_hold/
|
1iln8nk
|
mbw6slr
|
Find a trusted advisor to help with your inheritance. If you had truly amassed that through gradual investment you wouldn’t be asking this question. At least not in this fashion.
A decline in market value is not a “loss”, the loss happens when you decide to sell (which you shouldn’t be doing unless you have something urgent to pay for).
The mistakes you will likely make managing that amount of wealth on your own will far outweigh the fees of professional management for many years. Just something to think about.
| 39 |
Heyhayheigh
| 1,739,131,405 |
Does it still make sense to keep “100% buy and hold” SP500 if you have enough wealth at a young age?
|
35 yo and have amassed $3.3 million in liquid investments (401k, IRA, 457b, hsa, and taxable account combined).
Does it really make sense for my situation to blindly “buy and hold” for the next couple decades?
It’s much easier to stomach volatility when you are still starting out…a -30% decline on 200K investments is a nothing burger of -60K loss…..however a -30% decline of $3.3M is a loss of $1M. Like at this point what is wrong with taking some chips off the table to try to time the market with this unprecedented geopolitical environment?
I’m a physician and the funding cuts this government is possibly going to do healthcare means my high income may no longer be as reliably high in the near future, so I can’t be sure I could make up big losses with just “working it off”
| 631 |
achicomp
| 1,739,130,199 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/1iln8nk/does_it_still_make_sense_to_keep_100_buy_and_hold/
|
1iln8nk
|
mbwa4ia
|
You aren’t going to get very intelligent answers here, just conventional wisdom.
I think your reasoning makes sense. You want to capture some growth of the market but also prepare for the intense volatility of trump. I think keeping some of your funds in some type of cash equivalent ready for a bigger dip is a smart move. Then set up a rule for what your trigger is going to be. I.e., invest half the cash when the market is down 15% from ATH, half again every 5% after that, etc.
Will that necessarily beat just passively investing in the market? Depends on the timing of things. But would you be more prepared for whatever outcome? Certainly. Holding cash is a position and being ready to take advantage of major downturns has psychological and material benefits when that time comes.
| 14 |
_Apostate_
| 1,739,132,363 |
Does it still make sense to keep “100% buy and hold” SP500 if you have enough wealth at a young age?
|
35 yo and have amassed $3.3 million in liquid investments (401k, IRA, 457b, hsa, and taxable account combined).
Does it really make sense for my situation to blindly “buy and hold” for the next couple decades?
It’s much easier to stomach volatility when you are still starting out…a -30% decline on 200K investments is a nothing burger of -60K loss…..however a -30% decline of $3.3M is a loss of $1M. Like at this point what is wrong with taking some chips off the table to try to time the market with this unprecedented geopolitical environment?
I’m a physician and the funding cuts this government is possibly going to do healthcare means my high income may no longer be as reliably high in the near future, so I can’t be sure I could make up big losses with just “working it off”
| 631 |
achicomp
| 1,739,130,199 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/1iln8nk/does_it_still_make_sense_to_keep_100_buy_and_hold/
|
1iln8nk
|
mbwttuh
|
Being heavily into V00 is a long-term growth strategy. Not a crazy growth strategy, but it's something you should do if you're trying to accumulate value.
The conventional wisdom is, the less growth is important to you, the more you want to invest in bonds. A "maintenance" approach would have your money mostly in a variety of government bonds, which should (mostly) keep pace with inflation.
It would be very conservative to move entirely out of the stock market. It's worth pointing out (you don't tell us how your income is distributed between those accounts, but) your IRA and 401K are something you're not going to touch for 30 years. You would need an *extremely* high confidence that a major crash was coming to justify taking the money out. Very little reason not to leave those in broad index funds. Doing so would be extremely conservative - to the point that some would call paranoid.
Your taxable accounts are a little more iffy, since conceivably you might actually want access to that money. Moving a chunk of it into bonds protects your downside against a correction or a crash in two ways: first of all, it won't go down in the same way, but also, you can use that money first, which buys you more time for the stock portion of your portfolio to recover because you have to access it.
You don't talk about your goals, though, which are a big part of this. When do you expect to use that money, and what for? The sooner that is, the more it makes sense to move out of stocks.
A 30-year timeframe is really long, though. I would consider the possibility that protecting yourself from a 30-year downturn is, essentially, impossible: if stocks go down and stay down for that long, there is some radical reshaping of our society going on which means it's hard to make predictions about things like T-bills or real estate. That kind of "correction" would be world-altering in a way that is hard to predict.
Obviously, however, a portion of your concern is psychological. You've got some heavy loss aversion, which I completely understand. (I don't know if I believe that losing 30% of your net worth is harder with $3m than $200k - at $200k, you counting on each of those dollars to go much further). I don't want to get too woo-woo, but I do think there's value in understanding your feelings around this. Even if there was a 30% correction tomorrow, you're *way* ahead of the curve for retirement. You might not be able to "earn it back" but you'd still be sitting on an amount of money that you could retire on - the 4% rule would suggest that you could essentially live on $80k a year indefinitely, which is a pretty comfortable income (although in a world with a long-term 30% correction, the 4% rule may be a little optimistic).
Good luck.
| 5 |
HotspurJr
| 1,739,138,094 |
Does it still make sense to keep “100% buy and hold” SP500 if you have enough wealth at a young age?
|
35 yo and have amassed $3.3 million in liquid investments (401k, IRA, 457b, hsa, and taxable account combined).
Does it really make sense for my situation to blindly “buy and hold” for the next couple decades?
It’s much easier to stomach volatility when you are still starting out…a -30% decline on 200K investments is a nothing burger of -60K loss…..however a -30% decline of $3.3M is a loss of $1M. Like at this point what is wrong with taking some chips off the table to try to time the market with this unprecedented geopolitical environment?
I’m a physician and the funding cuts this government is possibly going to do healthcare means my high income may no longer be as reliably high in the near future, so I can’t be sure I could make up big losses with just “working it off”
| 631 |
achicomp
| 1,739,130,199 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/1iln8nk/does_it_still_make_sense_to_keep_100_buy_and_hold/
|
1iln8nk
|
mbw5akl
|
What was the unprecedented geopolitical event that I missed? SPX is 1% off ATH….
| 15 |
DialSquar
| 1,739,130,974 |
Does it still make sense to keep “100% buy and hold” SP500 if you have enough wealth at a young age?
|
35 yo and have amassed $3.3 million in liquid investments (401k, IRA, 457b, hsa, and taxable account combined).
Does it really make sense for my situation to blindly “buy and hold” for the next couple decades?
It’s much easier to stomach volatility when you are still starting out…a -30% decline on 200K investments is a nothing burger of -60K loss…..however a -30% decline of $3.3M is a loss of $1M. Like at this point what is wrong with taking some chips off the table to try to time the market with this unprecedented geopolitical environment?
I’m a physician and the funding cuts this government is possibly going to do healthcare means my high income may no longer be as reliably high in the near future, so I can’t be sure I could make up big losses with just “working it off”
| 631 |
achicomp
| 1,739,130,199 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/1iln8nk/does_it_still_make_sense_to_keep_100_buy_and_hold/
|
1iln8nk
|
mbwf5vw
|
So you got out of residency 3 or 4 years ago and amassed $3.3m? That doesn’t make sense. You inherited this money?
| 17 |
claytonw854
| 1,739,133,838 |
Does it still make sense to keep “100% buy and hold” SP500 if you have enough wealth at a young age?
|
35 yo and have amassed $3.3 million in liquid investments (401k, IRA, 457b, hsa, and taxable account combined).
Does it really make sense for my situation to blindly “buy and hold” for the next couple decades?
It’s much easier to stomach volatility when you are still starting out…a -30% decline on 200K investments is a nothing burger of -60K loss…..however a -30% decline of $3.3M is a loss of $1M. Like at this point what is wrong with taking some chips off the table to try to time the market with this unprecedented geopolitical environment?
I’m a physician and the funding cuts this government is possibly going to do healthcare means my high income may no longer be as reliably high in the near future, so I can’t be sure I could make up big losses with just “working it off”
| 631 |
achicomp
| 1,739,130,199 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/1iln8nk/does_it_still_make_sense_to_keep_100_buy_and_hold/
|
1iln8nk
|
mbw4b3t
|
35 and 3.3m it depends on your end goal. Are you planning to work for a few more decades and then retire? Planning to work less and use the money?
If you are 35 and planning on working 10+ years I likely would either do S&P500 or global market etfs and then let it ride. If you put more in bonds or put of the market you risk not making as much in the end. Most of the large gains in the market each year occur only on a few days. If you're not invested on those days you've already missed out on whatever % those gains are for the year.
Also if you're working a while and not touching the $, it'll eventually rebound if invested broadly and the entire world market isn't jacked up permanently
| 8 |
Jkayakj
| 1,739,130,693 |
Does it still make sense to keep “100% buy and hold” SP500 if you have enough wealth at a young age?
|
35 yo and have amassed $3.3 million in liquid investments (401k, IRA, 457b, hsa, and taxable account combined).
Does it really make sense for my situation to blindly “buy and hold” for the next couple decades?
It’s much easier to stomach volatility when you are still starting out…a -30% decline on 200K investments is a nothing burger of -60K loss…..however a -30% decline of $3.3M is a loss of $1M. Like at this point what is wrong with taking some chips off the table to try to time the market with this unprecedented geopolitical environment?
I’m a physician and the funding cuts this government is possibly going to do healthcare means my high income may no longer be as reliably high in the near future, so I can’t be sure I could make up big losses with just “working it off”
| 631 |
achicomp
| 1,739,130,199 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/1iln8nk/does_it_still_make_sense_to_keep_100_buy_and_hold/
|
1iln8nk
|
mbw9hmr
|
It never made sense to buy and hold for all of your wealth. Never a good idea to be “all in” into anything, we live in dangerous times for stocks.
Especially at your level of wealth the most important thing is to not lose money. Having some diversification into lower volatility (e.g. bonds) as well as real assets (e.g. real estate) would be extremely smart.
| 5 |
uncleBu
| 1,739,132,176 |
Does it still make sense to keep “100% buy and hold” SP500 if you have enough wealth at a young age?
|
35 yo and have amassed $3.3 million in liquid investments (401k, IRA, 457b, hsa, and taxable account combined).
Does it really make sense for my situation to blindly “buy and hold” for the next couple decades?
It’s much easier to stomach volatility when you are still starting out…a -30% decline on 200K investments is a nothing burger of -60K loss…..however a -30% decline of $3.3M is a loss of $1M. Like at this point what is wrong with taking some chips off the table to try to time the market with this unprecedented geopolitical environment?
I’m a physician and the funding cuts this government is possibly going to do healthcare means my high income may no longer be as reliably high in the near future, so I can’t be sure I could make up big losses with just “working it off”
| 631 |
achicomp
| 1,739,130,199 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/1iln8nk/does_it_still_make_sense_to_keep_100_buy_and_hold/
|
18747yw
|
kbcab55
|
An investment calculator is not optimistic or pessimistic, it just does basic math. The S&P500 has returned over 10% annually on average and accounting for inflation, not nowadays inflation but normal average inflation, that's about 8% a year. So yes whatever you put in is what has historically happened, with no guarantees that will continue but that's investing 🤷🏻♂️
| 89 |
yaboyyake
| 1,701,305,585 |
Investment calculators seem overly optimistic
|
Wife and I are 48/46 with $325k in our 401k’s combined. We make $160k together with a 10% contribution and a 6% employer match invested 100% in FXAIX. (same employer). The investment calculators show us at $2.3m at 65/67 assuming an 8% return. Is that overly optimistic? I planned on maxing out our Roth as soon as the house is paid off (20 months), again though we currently only have the 401k. She also has 100% VA disability and I have 40% that adds $4800/month outside of the $160k a year that will increase annually with social security COLA’s, then add social security (or what’ll be left of it by then).
| 29 |
SnooPickles3280
| 1,701,302,660 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/18747yw/investment_calculators_seem_overly_optimistic/
|
18747yw
|
kbce4co
|
First. No one can predict the future.
Second. FXAIX has been around for 12 years and over that history it went from $47.50 to $158.45 which is an annualized return of about 10.6%. See the graph of FXAIX [here](https://www.google.com/finance/quote/FXAIX:MUTF?window=MAX).
Third. I ran your numbers and, assuming FXAIX performs as well going forward, it appears the investment calculator you used is underestimating where you will be. My estimate shows you should have $2.8 million in your 401K in about 17 years.
You can check my calculations [here](https://smartasset.com/investing/investment-calculator#GwFEnaLf8M).
I would say the estimate you got is sort of middle of the road and might be a pretty good number to use for planning purposes. You could always be a little safer and use a nice round $2 million amount for your planning purposes if you want to be more conservative which is probably a good idea. Better to have more than expected at retirement than less.
| 15 |
TO_GOF
| 1,701,307,228 |
Investment calculators seem overly optimistic
|
Wife and I are 48/46 with $325k in our 401k’s combined. We make $160k together with a 10% contribution and a 6% employer match invested 100% in FXAIX. (same employer). The investment calculators show us at $2.3m at 65/67 assuming an 8% return. Is that overly optimistic? I planned on maxing out our Roth as soon as the house is paid off (20 months), again though we currently only have the 401k. She also has 100% VA disability and I have 40% that adds $4800/month outside of the $160k a year that will increase annually with social security COLA’s, then add social security (or what’ll be left of it by then).
| 29 |
SnooPickles3280
| 1,701,302,660 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/18747yw/investment_calculators_seem_overly_optimistic/
|
18747yw
|
kbc7bze
|
That does not count inflation. With 5.5% real return, you'd have $1.6M in today's dollars.
| 12 |
kiwimancy
| 1,701,304,320 |
Investment calculators seem overly optimistic
|
Wife and I are 48/46 with $325k in our 401k’s combined. We make $160k together with a 10% contribution and a 6% employer match invested 100% in FXAIX. (same employer). The investment calculators show us at $2.3m at 65/67 assuming an 8% return. Is that overly optimistic? I planned on maxing out our Roth as soon as the house is paid off (20 months), again though we currently only have the 401k. She also has 100% VA disability and I have 40% that adds $4800/month outside of the $160k a year that will increase annually with social security COLA’s, then add social security (or what’ll be left of it by then).
| 29 |
SnooPickles3280
| 1,701,302,660 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/18747yw/investment_calculators_seem_overly_optimistic/
|
18747yw
|
kbcb510
|
I think 7% is the real (after inflation) average annual return, so I would use that number. But, yeah, statistically investing for ˜20 years will pay off if you let time do the heavy lifting.
| 6 |
thewimsey
| 1,701,305,939 |
Investment calculators seem overly optimistic
|
Wife and I are 48/46 with $325k in our 401k’s combined. We make $160k together with a 10% contribution and a 6% employer match invested 100% in FXAIX. (same employer). The investment calculators show us at $2.3m at 65/67 assuming an 8% return. Is that overly optimistic? I planned on maxing out our Roth as soon as the house is paid off (20 months), again though we currently only have the 401k. She also has 100% VA disability and I have 40% that adds $4800/month outside of the $160k a year that will increase annually with social security COLA’s, then add social security (or what’ll be left of it by then).
| 29 |
SnooPickles3280
| 1,701,302,660 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/18747yw/investment_calculators_seem_overly_optimistic/
|
18747yw
|
kbcn19f
|
the problem with investment calculators is they assume the market goes up, without fail, at a predicable or guaranteed annual rate.
in reality, that does not happen. the website Real Investment Advice did an article recentlyabout how market returns are very uneven, with long periods of nothing and small clusters of fantastic returns: https://realinvestmentadvice.com/compound-market-returns-are-a-myth/
for example, the S&P 500 (FXAIX) was nearly flat from 2000-2011, with cumulative returns slightly over 10%, and thus average annual returns under 1%/year. not 8%. chart here, using VIIIX: https://imgur.com/a/yZjkS1r
adjust for inflation and you would have lost money in the S&P 500 from about 1968-1994. https://www.macrotrends.net/2324/sp-500-historical-chart-data
so when you run those investment calculators, interpret the numbers with caution because they don't adjust for major crashes or 'lost decades'. IMO cut the results by about 50% and assume your returns will likely, but not definitely, be somewhere between $1.1 and $2.3 million.
| 8 |
harrison_wintergreen
| 1,701,310,975 |
Investment calculators seem overly optimistic
|
Wife and I are 48/46 with $325k in our 401k’s combined. We make $160k together with a 10% contribution and a 6% employer match invested 100% in FXAIX. (same employer). The investment calculators show us at $2.3m at 65/67 assuming an 8% return. Is that overly optimistic? I planned on maxing out our Roth as soon as the house is paid off (20 months), again though we currently only have the 401k. She also has 100% VA disability and I have 40% that adds $4800/month outside of the $160k a year that will increase annually with social security COLA’s, then add social security (or what’ll be left of it by then).
| 29 |
SnooPickles3280
| 1,701,302,660 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/18747yw/investment_calculators_seem_overly_optimistic/
|
10fceaj
|
j4vz1pr
|
They are being sued for faulty earplugs (largest MDL in history) and are also being sued for ‘forever chemicals’ that have polluted water sources. So they have billions in legal exposure at the moment.
| 973 |
SCLefty
| 1,674,062,466 |
Why don't investors seem to like 3M (MMM)?
|
I am just an amateur passive investor in it for the long haul and am certainly not a financial investor. Full disclosure I do have a very small portion of my investments in 3M (\~2.4%).
Maybe I'm missing something big here, but why does it seem like there is such negative sentiment towards owning 3M? It operates in a relatively stable environment (Industrials) and has had consistently yielded EPS over consensus and has a very strong dividend (4.7%, but long history of paying dividend). It even has above-average ESG for the sector and from looking around its balance sheets, nothing jumps out at me as a sign of a declining business.
I understand the amount of free capital floating around in the beginning of the pandemic leads to an overvaluation of stocks across the board, but this stock seems to be mis-valued. Or maybe I'm completely blind to something here in which case I would appreciate any help in understanding the cause of 3M's steady price decline. Thanks!
| 539 |
PublicObscurity
| 1,674,061,201 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/10fceaj/why_dont_investors_seem_to_like_3m_mmm/
|
10fceaj
|
j4wpw6h
|
People are negative on 3M (and understandably so), for the current legal issues (and morality I guess) with the ear plugs, and the pfas chemicals.
Nestle, which has a lot of hate (even their own subreddit of hate), is up over 40% for the past 5 years. They seem to be doing fine, as a stock choice.
And I understand the hate they get. I agree with the negative sentiment. But as a company, it's strong.
Other hand... Bayer (who acquired Monsanto) has been taking dump since the acquisition of Monsanto.
I'm sure there are other factors, than public sentiment. But I would not downplay the effects of public perception.
I like 3M stock at this price point. I use their products for work. I feel they are broad enough, and big enough to get past the current issues. 3M is a long term play, I would plan on 5 years or longer. I also consider it more o. The speculative side, given the current legal situation.
| 54 |
dfrlnz
| 1,674,072,300 |
Why don't investors seem to like 3M (MMM)?
|
I am just an amateur passive investor in it for the long haul and am certainly not a financial investor. Full disclosure I do have a very small portion of my investments in 3M (\~2.4%).
Maybe I'm missing something big here, but why does it seem like there is such negative sentiment towards owning 3M? It operates in a relatively stable environment (Industrials) and has had consistently yielded EPS over consensus and has a very strong dividend (4.7%, but long history of paying dividend). It even has above-average ESG for the sector and from looking around its balance sheets, nothing jumps out at me as a sign of a declining business.
I understand the amount of free capital floating around in the beginning of the pandemic leads to an overvaluation of stocks across the board, but this stock seems to be mis-valued. Or maybe I'm completely blind to something here in which case I would appreciate any help in understanding the cause of 3M's steady price decline. Thanks!
| 539 |
PublicObscurity
| 1,674,061,201 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/10fceaj/why_dont_investors_seem_to_like_3m_mmm/
|
10fceaj
|
j4vx0vt
|
Because they are being sued by the US military I believe.
| 99 |
Dadd_io
| 1,674,061,727 |
Why don't investors seem to like 3M (MMM)?
|
I am just an amateur passive investor in it for the long haul and am certainly not a financial investor. Full disclosure I do have a very small portion of my investments in 3M (\~2.4%).
Maybe I'm missing something big here, but why does it seem like there is such negative sentiment towards owning 3M? It operates in a relatively stable environment (Industrials) and has had consistently yielded EPS over consensus and has a very strong dividend (4.7%, but long history of paying dividend). It even has above-average ESG for the sector and from looking around its balance sheets, nothing jumps out at me as a sign of a declining business.
I understand the amount of free capital floating around in the beginning of the pandemic leads to an overvaluation of stocks across the board, but this stock seems to be mis-valued. Or maybe I'm completely blind to something here in which case I would appreciate any help in understanding the cause of 3M's steady price decline. Thanks!
| 539 |
PublicObscurity
| 1,674,061,201 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/10fceaj/why_dont_investors_seem_to_like_3m_mmm/
|
10fceaj
|
j4w02xs
|
Lawsuit. Justice refuse them from separating division to bankrupt earplug division soo there in for hell of a ride not everybody wanna see how it turn out+ they produce defective product for so long its complex
| 47 |
Sauliann
| 1,674,062,840 |
Why don't investors seem to like 3M (MMM)?
|
I am just an amateur passive investor in it for the long haul and am certainly not a financial investor. Full disclosure I do have a very small portion of my investments in 3M (\~2.4%).
Maybe I'm missing something big here, but why does it seem like there is such negative sentiment towards owning 3M? It operates in a relatively stable environment (Industrials) and has had consistently yielded EPS over consensus and has a very strong dividend (4.7%, but long history of paying dividend). It even has above-average ESG for the sector and from looking around its balance sheets, nothing jumps out at me as a sign of a declining business.
I understand the amount of free capital floating around in the beginning of the pandemic leads to an overvaluation of stocks across the board, but this stock seems to be mis-valued. Or maybe I'm completely blind to something here in which case I would appreciate any help in understanding the cause of 3M's steady price decline. Thanks!
| 539 |
PublicObscurity
| 1,674,061,201 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/10fceaj/why_dont_investors_seem_to_like_3m_mmm/
|
10fceaj
|
j4wav3l
|
Myself, and many others, have hearing damage due to their faulty earplugs that they knew damn well didn't perform as their -db rating stated.
They'll screw over America's volunteer forces to make a buck justifiably leaves a bad taste in people's mouths. They're doing everything they can to avoid/delay compensation, too.
| 62 |
Captain_Howdey
| 1,674,066,758 |
Why don't investors seem to like 3M (MMM)?
|
I am just an amateur passive investor in it for the long haul and am certainly not a financial investor. Full disclosure I do have a very small portion of my investments in 3M (\~2.4%).
Maybe I'm missing something big here, but why does it seem like there is such negative sentiment towards owning 3M? It operates in a relatively stable environment (Industrials) and has had consistently yielded EPS over consensus and has a very strong dividend (4.7%, but long history of paying dividend). It even has above-average ESG for the sector and from looking around its balance sheets, nothing jumps out at me as a sign of a declining business.
I understand the amount of free capital floating around in the beginning of the pandemic leads to an overvaluation of stocks across the board, but this stock seems to be mis-valued. Or maybe I'm completely blind to something here in which case I would appreciate any help in understanding the cause of 3M's steady price decline. Thanks!
| 539 |
PublicObscurity
| 1,674,061,201 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/10fceaj/why_dont_investors_seem_to_like_3m_mmm/
|
10fceaj
|
j4z0gna
|
Where do you hear that crap? MMM is a great company that pays solid dividends.
| 8 |
rhythmdev
| 1,674,108,940 |
Why don't investors seem to like 3M (MMM)?
|
I am just an amateur passive investor in it for the long haul and am certainly not a financial investor. Full disclosure I do have a very small portion of my investments in 3M (\~2.4%).
Maybe I'm missing something big here, but why does it seem like there is such negative sentiment towards owning 3M? It operates in a relatively stable environment (Industrials) and has had consistently yielded EPS over consensus and has a very strong dividend (4.7%, but long history of paying dividend). It even has above-average ESG for the sector and from looking around its balance sheets, nothing jumps out at me as a sign of a declining business.
I understand the amount of free capital floating around in the beginning of the pandemic leads to an overvaluation of stocks across the board, but this stock seems to be mis-valued. Or maybe I'm completely blind to something here in which case I would appreciate any help in understanding the cause of 3M's steady price decline. Thanks!
| 539 |
PublicObscurity
| 1,674,061,201 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/10fceaj/why_dont_investors_seem_to_like_3m_mmm/
|
10fceaj
|
j4w3uif
|
They are spinning off their [healthcare business](https://investors.3m.com/news/news-details/2022/3M-Announces-Plans-to-Create-Long-Term-Value-Through-Spin-Off-of-Health-Care-Business/default.aspx) that I think is the most attractive being regulated and having barriers to entry. For me, their DIY, post-it, adhesives are easily copied - just go into any big box or office retailer.
| 13 |
stickman07738
| 1,674,064,207 |
Why don't investors seem to like 3M (MMM)?
|
I am just an amateur passive investor in it for the long haul and am certainly not a financial investor. Full disclosure I do have a very small portion of my investments in 3M (\~2.4%).
Maybe I'm missing something big here, but why does it seem like there is such negative sentiment towards owning 3M? It operates in a relatively stable environment (Industrials) and has had consistently yielded EPS over consensus and has a very strong dividend (4.7%, but long history of paying dividend). It even has above-average ESG for the sector and from looking around its balance sheets, nothing jumps out at me as a sign of a declining business.
I understand the amount of free capital floating around in the beginning of the pandemic leads to an overvaluation of stocks across the board, but this stock seems to be mis-valued. Or maybe I'm completely blind to something here in which case I would appreciate any help in understanding the cause of 3M's steady price decline. Thanks!
| 539 |
PublicObscurity
| 1,674,061,201 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/10fceaj/why_dont_investors_seem_to_like_3m_mmm/
|
w9g6si
|
ihv0xob
|
Only thing I can think of is if it’s more than 20% it needs to be accounted for under equity method of accounting so value of all assets and liabilities X % ownership. If less than 20% they can just dump it as a ownership one liner under their equity section of balance sheet. Although I feel this isn’t the main reason you’re alluding to on why they do it
| 57 |
DoUEvenDoubleLIFT
| 1,658,935,030 |
3M healthcare spin off announcement - why retain 19.9%?
|
Following 3M's earnings call yesterday and the subsequent announcement that they will spin off the healthcare business -- the announcement states 3M will retain a 19.9% ownership of the new company; I noticed GE held the same percentage of their spin off businesses. I'm curious what the reasoning is for keeping this under 20%, is there a tax impact otherwise?
[https://www.reuters.com/business/healthcare-pharmaceuticals/3m-spin-off-healthcare-business-2022-07-26/](https://www.reuters.com/business/healthcare-pharmaceuticals/3m-spin-off-healthcare-business-2022-07-26/)
| 78 |
Due_North371
| 1,658,932,011 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/w9g6si/3m_healthcare_spin_off_announcement_why_retain_199/
|
w9g6si
|
ihx0549
|
So they can book the remaining portion of their investment on a cost-based vs having to account for it as an equity method investment.
Threshold rule of thumb generally ~20% although the technical accounting guidance is if the parent "exercises control" - so theoretically they could have to account for their remaining ownership in the SpinCo as an equity method investment if they have a member on the board, or some other feature that would allow 3M to "exercise control"
Souce: am CPA and former B4 audit drone
| 13 |
Jeff__Skilling
| 1,658,962,095 |
3M healthcare spin off announcement - why retain 19.9%?
|
Following 3M's earnings call yesterday and the subsequent announcement that they will spin off the healthcare business -- the announcement states 3M will retain a 19.9% ownership of the new company; I noticed GE held the same percentage of their spin off businesses. I'm curious what the reasoning is for keeping this under 20%, is there a tax impact otherwise?
[https://www.reuters.com/business/healthcare-pharmaceuticals/3m-spin-off-healthcare-business-2022-07-26/](https://www.reuters.com/business/healthcare-pharmaceuticals/3m-spin-off-healthcare-business-2022-07-26/)
| 78 |
Due_North371
| 1,658,932,011 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/w9g6si/3m_healthcare_spin_off_announcement_why_retain_199/
|
w4rjld
|
ih3r393
|
Negative cash flow and earnings and they are.. buying back shares? WTF?
This reeks of mismanagement. Or am I so oldschool that I think buybacks are the step that comes after being profitable?
| 228 |
Nemarus_Investor
| 1,658,437,813 |
Snapchat $SNAP Earnings Report 7/22:
|
· EPS: $-0.02 act. v. $-0.01 est.
· Rev: $1.11B act. v. $1.14 est.
· SNAP to slow hiring rate of operating expense growth
· Will not provide any Q3 forecast…
· Free Cash Flow: - $147.5M , +27% y/y, est. - $52.3M
· Announces $500M share buyback
​
Yikes......
| 160 |
Evening-Studio-5083
| 1,658,437,027 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/w4rjld/snapchat_snap_earnings_report_722/
|
w4rjld
|
ih3tm5m
|
What credit card are they maxing out to buy back shares?
| 108 |
sandersking
| 1,658,438,789 |
Snapchat $SNAP Earnings Report 7/22:
|
· EPS: $-0.02 act. v. $-0.01 est.
· Rev: $1.11B act. v. $1.14 est.
· SNAP to slow hiring rate of operating expense growth
· Will not provide any Q3 forecast…
· Free Cash Flow: - $147.5M , +27% y/y, est. - $52.3M
· Announces $500M share buyback
​
Yikes......
| 160 |
Evening-Studio-5083
| 1,658,437,027 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/w4rjld/snapchat_snap_earnings_report_722/
|
w4rjld
|
ih3wzjx
|
Q1 they had projected 25% growth for q2, YoY. Delivered 13% growth, YoY.
| 37 |
ctr2010
| 1,658,440,112 |
Snapchat $SNAP Earnings Report 7/22:
|
· EPS: $-0.02 act. v. $-0.01 est.
· Rev: $1.11B act. v. $1.14 est.
· SNAP to slow hiring rate of operating expense growth
· Will not provide any Q3 forecast…
· Free Cash Flow: - $147.5M , +27% y/y, est. - $52.3M
· Announces $500M share buyback
​
Yikes......
| 160 |
Evening-Studio-5083
| 1,658,437,027 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/w4rjld/snapchat_snap_earnings_report_722/
|
w4rjld
|
ih3pyl9
|
Down 25% AH. Put pressure on Google and Meta which should not be that much down in my opinion.
| 47 |
jcdan3
| 1,658,437,378 |
Snapchat $SNAP Earnings Report 7/22:
|
· EPS: $-0.02 act. v. $-0.01 est.
· Rev: $1.11B act. v. $1.14 est.
· SNAP to slow hiring rate of operating expense growth
· Will not provide any Q3 forecast…
· Free Cash Flow: - $147.5M , +27% y/y, est. - $52.3M
· Announces $500M share buyback
​
Yikes......
| 160 |
Evening-Studio-5083
| 1,658,437,027 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/w4rjld/snapchat_snap_earnings_report_722/
|
w4rjld
|
ih4sx9y
|
Instagram and tiktok shit on this company
| 26 |
oarabbus
| 1,658,454,113 |
Snapchat $SNAP Earnings Report 7/22:
|
· EPS: $-0.02 act. v. $-0.01 est.
· Rev: $1.11B act. v. $1.14 est.
· SNAP to slow hiring rate of operating expense growth
· Will not provide any Q3 forecast…
· Free Cash Flow: - $147.5M , +27% y/y, est. - $52.3M
· Announces $500M share buyback
​
Yikes......
| 160 |
Evening-Studio-5083
| 1,658,437,027 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/w4rjld/snapchat_snap_earnings_report_722/
|
w4rjld
|
ih4nylx
|
Honestly snap is pretty dead. None of my friends use it anymore. Everyone just 24h on TikTok.
| 59 |
Youkiame
| 1,658,451,822 |
Snapchat $SNAP Earnings Report 7/22:
|
· EPS: $-0.02 act. v. $-0.01 est.
· Rev: $1.11B act. v. $1.14 est.
· SNAP to slow hiring rate of operating expense growth
· Will not provide any Q3 forecast…
· Free Cash Flow: - $147.5M , +27% y/y, est. - $52.3M
· Announces $500M share buyback
​
Yikes......
| 160 |
Evening-Studio-5083
| 1,658,437,027 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/w4rjld/snapchat_snap_earnings_report_722/
|
w4rjld
|
ih59ea9
|
Their ARPU was horrible and showed a negative 4% change from last year while client acquisition costs and G&A were way up. No guidance, no bueno.
| 6 |
Kredit4Credit
| 1,658,462,151 |
Snapchat $SNAP Earnings Report 7/22:
|
· EPS: $-0.02 act. v. $-0.01 est.
· Rev: $1.11B act. v. $1.14 est.
· SNAP to slow hiring rate of operating expense growth
· Will not provide any Q3 forecast…
· Free Cash Flow: - $147.5M , +27% y/y, est. - $52.3M
· Announces $500M share buyback
​
Yikes......
| 160 |
Evening-Studio-5083
| 1,658,437,027 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/w4rjld/snapchat_snap_earnings_report_722/
|
w4rjld
|
ih62v7s
|
Who would’ve thought that Snapchat would trigger the Financial Collapse… 🤡
| 5 |
Griffin90
| 1,658,482,505 |
Snapchat $SNAP Earnings Report 7/22:
|
· EPS: $-0.02 act. v. $-0.01 est.
· Rev: $1.11B act. v. $1.14 est.
· SNAP to slow hiring rate of operating expense growth
· Will not provide any Q3 forecast…
· Free Cash Flow: - $147.5M , +27% y/y, est. - $52.3M
· Announces $500M share buyback
​
Yikes......
| 160 |
Evening-Studio-5083
| 1,658,437,027 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/w4rjld/snapchat_snap_earnings_report_722/
|
sdsoyd
|
huftddp
|
This data table doesn't contain enough detail to distinguish between direct/indirect holdings, or between different share classes (common, preferred, etc). I assume that if you clicked on the linked SEC Form 4 timestamp at the end of the row, you'd be taken to a document that had these details spelled out (though it may not have made any more sense to you, as SEC filings are not exactly designed to be easily readable by laypeople).
| 6 |
emikoala
| 1,643,292,075 |
Can someone explain this for me, how can this person own 1.5M Shares then jump to 160M Shares without a purchase history? (Finviz) (Imgur Link in description)
|
https://imgur.com/a/Ke2n2IO
Can someone explain this for me, how can this person own 1.5M Shares then jump to 160M Shares without a purchase history? (Finviz) (Imgur Link is in description)
As per title, Basically, and then he goes back down to 1.3M Stocks but no sell orders/history that big. How is this possible?
An explanation would be appreciated.
Thanks from an amateur investor looking to learn :)
| 28 |
Teamemb99
| 1,643,268,013 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/sdsoyd/can_someone_explain_this_for_me_how_can_this/
|
o74lks
|
h2witnu
|
Do you see margins expanding as they grow? 24.72% gross profit margins is pretty low for what I would’ve expected
| 28 |
Stonksftw222
| 1,624,553,389 |
Genius Sports $GENI- Picks & Shovels for Sports Gambling
|
disclosure: 1000 shares and 2500 warrants
Here is the ONLY* way to play the pick and shovel side of the rapidly growing sports gambling segment: Genius Sports **$GENI**
*edit* *Competitor Sportradar is in process of traditional IPO but no date has been set. They had a failed merge with a SPAC recently most likely due to the high valuation and in my opinion the loss of the NFL contract. If the IPO is at a decent valuation this will be another good play on the picks and shovels part of sports gambling. GENI and Sportradar have a duopoly on the market.
Genius Sports is the official data, technology and commercial partner that powers the global ecosystem connecting sports, betting and media.
They are the trusted partner to over 400 sports organizations globally, capturing the highest quality data for many of the world’s largest leagues and federations such as the NFL, EPL, FIBA, NCAA, NASCAR, AFA and PGA.
Not only are they partners with the sports leagues, they are partners with the 300 of the world’s largest sportsbooks brands, and media outlets:
**Sports:** NFL, NBA, Premier League, NCAA, Football Data Co, FIBA, Euroleague Basketball, PGA
**Betting:** Bet365, Flutter, William Hill, Betway, Draftkings
**Media:** NFL, CBS All Access, Pizza Hut, Michigan Lottery, MLB, POINTSBET, FanDuel, BETMGM, Caesers Sportsbook, Volvo
Not only are they partnered with the NFL but **$GENI** won the exclusive distribution rights for NFL official data in April. They beat out their only main competitor, Sportradar. In addition to data rights, the partnership includes adjacent agreements such as video streaming rights to international (non-US) sportsbooks. $GENI will also support the NFL’s data collection and advertising capabilities while also helping monitor suspicious activity to maintain integrity.
This exclusive deal validates Genius Sports competitive position as a core cog in the global sports betting industry, where global sportsbook operators rely on data feeds distributed by **$GENI**
1st Quarter Earnings $GENI reported 1st quarter earnings on May 20th and raised full year 2021 revenue guidance by 35%
-Q1 revenue increased 52% year-over-year to $53.7m
-First quarter group Adj. EBITDA up 414% year-over year to $9.3m (net loss of $5.3m)
-Raised FY2021 group revenue guidance from $190m to $250m-$260m
-Announced a six-year strategic partnership with the National Football League
-Entered into a two-year marketing partnership with FanDuel to deliver data-driven, targeted advertising
-Announced the acquisitions of two leading technology companies, FanHub and Second Spectrum, diversifying our offering and enhancing capabilities
-Appointed sports industry leader and former Turner President, David Levy, as Genius Sports’ new Chairman. GROWTH
Gross Gaming Revenue expected to nearly double from $31B in 2020 to $59B by 2025 (via H2 Gambling Capital). These numbers do not include Canada who just passed a federal bill to legalize sports gambling across the country – Consider Canada as a second California for population.
**$GENI** looks to take advantage of this with 120% EBITDA growth CAGR from 2020-2022.
**$GENI** has also proven their growth over the past several years: $88m in 2018, $115m in 2019, $149.7m in 2020. As previously stated they have increased their 2021F from $190m to $250-$260m, already surpassing their 2022F of $238M.
**MOAT**
**$GENI** is the leading exclusive content and data provider for data acquisition and data monetization:
-They are the mission critical supplier to sports betting operators
-Provide exclusive, official data to sports betting operators worldwide with risk management and trading solutions
-They acquire exclusive, official rights to sports data from major leagues and federations
**$GENI** is one of two players (and the only publicly traded one for now) of scale providing full-service provision: # of events covered, # of sports covered, Sport League Services, One stop shop betting services, media solutions, Streaming solutions.
Their Technology and scale provide high barriers to entry:
-1500 employees across 6 continents
-450 employees in technology and trading
-7,000 statisticians and agents
-650+ long term partnerships with sports and sportsbooks
-$110m+ invested in proprietary technology
-Their technology exchange for rights means **$GENI** becomes fully embedded and hard to replace (150+ integrations)
-Analyze risk and manage markets, probabilities and results for 240k+ events every year
-Highly customizable software to manage every aspect of a sportsbook’s data and trading offering: outsourced sports wagering at scale
**OFFICIAL DATA**
**$GENI** has the feed of live sports statistics that is sanctioned by the sports for collection and distribution (BIG DEAL).
Why that matters:
Matters to sports – it goes to the very heart of their funding
Matters to sportsbooks – only official data gives them the security of the supply they need
Matters to regulators – protects consumers
Matters to investors – the cost of sports data is built into their model, contributing to our high barriers to entry
Anecdotal: Genius Sports is so important to Draftkings that it is listed in their risk factors
**Coverage**
**$GENI** has been covered by a handful of analysts who have all given this a buy rating with PTs in the high 20’s and low 30s:
Goldman Sachs: $31
Craig Hallum: $30
Needham & Co: $28
Benchmark: $33
Oppenheimer: $32
As of writing this, the stock is trading at $19.40. Still a huge discount to the price targets above. Part of this discount is **$GENI** recently had an upsized stock offering of 22 million shares. While the market reacted negatively, Oppenheimer came out and reiterated their PT of $32 as they saw this as a positive for the company to raise cash to continue to acquire companies that complement their offerings. Most recently they acquired Second Spectrum (Augmented reality and tracking technology backed by Steve Ballmer), and Fanhub (free to play games).
TLDR: **$GENI** is the the pick and shovel data provider to all the favorite sports betting books including $DKNG, and the only publicly traded sports betting data provider in one of the fastest growing segments in the US market. With a huge moat, Exclusive partnership with the NFL, and partnerships with hundreds of other sports leagues and sports betting books why try picking a winner when you can invest in the data provider that supplies them all?
*Edit* It was also brought to my attention I was lacking bear cases. The only bear case I can think of is that GENI overpaid for the NFL contract. My rebuttal is while Sportradar had it from 2015 to 2020, they were not able to take full advantage of sports gambling revenue as it was not prominent or legal in most states. This is rapidly changing and GENI has built in 5% of revenue from any sports book that uses their data. As gambling continues to grow so will Genius Sports revenue. Another element of the partnership with Genius Sports gives the company the right to distribute live audiovisual game feeds to sportsbooks in international markets, while it will also represent the NFL’s legalized sports betting advertising inventory across the league’s owned and operated digital platforms domestically and internationally.
These aspects along with great exposure for the company via the NFL and Genius Sports ability to entrench their technology into the leagues technology make this deal worth it IMO albeit the high price tag.
If you have any other bear cases that I have not thought of please comment below.
| 185 |
tgood87
| 1,624,552,615 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/o74lks/genius_sports_geni_picks_shovels_for_sports/
|
o74lks
|
h2wtung
|
I loaded up on GENI back in December when it was still DMYD. If there’s one thing I can say for certain this stock is volatile as hell. Buy a dip and hold this one.
I originally got in because I actually use the in-play sports betting features on Bet365 and the possibilities to grow the in-play markets is just massive. The technology is just in its infancy now I can’t imagine what betting on sports will be like in 10-20 years from now.
| 16 |
archdex
| 1,624,558,214 |
Genius Sports $GENI- Picks & Shovels for Sports Gambling
|
disclosure: 1000 shares and 2500 warrants
Here is the ONLY* way to play the pick and shovel side of the rapidly growing sports gambling segment: Genius Sports **$GENI**
*edit* *Competitor Sportradar is in process of traditional IPO but no date has been set. They had a failed merge with a SPAC recently most likely due to the high valuation and in my opinion the loss of the NFL contract. If the IPO is at a decent valuation this will be another good play on the picks and shovels part of sports gambling. GENI and Sportradar have a duopoly on the market.
Genius Sports is the official data, technology and commercial partner that powers the global ecosystem connecting sports, betting and media.
They are the trusted partner to over 400 sports organizations globally, capturing the highest quality data for many of the world’s largest leagues and federations such as the NFL, EPL, FIBA, NCAA, NASCAR, AFA and PGA.
Not only are they partners with the sports leagues, they are partners with the 300 of the world’s largest sportsbooks brands, and media outlets:
**Sports:** NFL, NBA, Premier League, NCAA, Football Data Co, FIBA, Euroleague Basketball, PGA
**Betting:** Bet365, Flutter, William Hill, Betway, Draftkings
**Media:** NFL, CBS All Access, Pizza Hut, Michigan Lottery, MLB, POINTSBET, FanDuel, BETMGM, Caesers Sportsbook, Volvo
Not only are they partnered with the NFL but **$GENI** won the exclusive distribution rights for NFL official data in April. They beat out their only main competitor, Sportradar. In addition to data rights, the partnership includes adjacent agreements such as video streaming rights to international (non-US) sportsbooks. $GENI will also support the NFL’s data collection and advertising capabilities while also helping monitor suspicious activity to maintain integrity.
This exclusive deal validates Genius Sports competitive position as a core cog in the global sports betting industry, where global sportsbook operators rely on data feeds distributed by **$GENI**
1st Quarter Earnings $GENI reported 1st quarter earnings on May 20th and raised full year 2021 revenue guidance by 35%
-Q1 revenue increased 52% year-over-year to $53.7m
-First quarter group Adj. EBITDA up 414% year-over year to $9.3m (net loss of $5.3m)
-Raised FY2021 group revenue guidance from $190m to $250m-$260m
-Announced a six-year strategic partnership with the National Football League
-Entered into a two-year marketing partnership with FanDuel to deliver data-driven, targeted advertising
-Announced the acquisitions of two leading technology companies, FanHub and Second Spectrum, diversifying our offering and enhancing capabilities
-Appointed sports industry leader and former Turner President, David Levy, as Genius Sports’ new Chairman. GROWTH
Gross Gaming Revenue expected to nearly double from $31B in 2020 to $59B by 2025 (via H2 Gambling Capital). These numbers do not include Canada who just passed a federal bill to legalize sports gambling across the country – Consider Canada as a second California for population.
**$GENI** looks to take advantage of this with 120% EBITDA growth CAGR from 2020-2022.
**$GENI** has also proven their growth over the past several years: $88m in 2018, $115m in 2019, $149.7m in 2020. As previously stated they have increased their 2021F from $190m to $250-$260m, already surpassing their 2022F of $238M.
**MOAT**
**$GENI** is the leading exclusive content and data provider for data acquisition and data monetization:
-They are the mission critical supplier to sports betting operators
-Provide exclusive, official data to sports betting operators worldwide with risk management and trading solutions
-They acquire exclusive, official rights to sports data from major leagues and federations
**$GENI** is one of two players (and the only publicly traded one for now) of scale providing full-service provision: # of events covered, # of sports covered, Sport League Services, One stop shop betting services, media solutions, Streaming solutions.
Their Technology and scale provide high barriers to entry:
-1500 employees across 6 continents
-450 employees in technology and trading
-7,000 statisticians and agents
-650+ long term partnerships with sports and sportsbooks
-$110m+ invested in proprietary technology
-Their technology exchange for rights means **$GENI** becomes fully embedded and hard to replace (150+ integrations)
-Analyze risk and manage markets, probabilities and results for 240k+ events every year
-Highly customizable software to manage every aspect of a sportsbook’s data and trading offering: outsourced sports wagering at scale
**OFFICIAL DATA**
**$GENI** has the feed of live sports statistics that is sanctioned by the sports for collection and distribution (BIG DEAL).
Why that matters:
Matters to sports – it goes to the very heart of their funding
Matters to sportsbooks – only official data gives them the security of the supply they need
Matters to regulators – protects consumers
Matters to investors – the cost of sports data is built into their model, contributing to our high barriers to entry
Anecdotal: Genius Sports is so important to Draftkings that it is listed in their risk factors
**Coverage**
**$GENI** has been covered by a handful of analysts who have all given this a buy rating with PTs in the high 20’s and low 30s:
Goldman Sachs: $31
Craig Hallum: $30
Needham & Co: $28
Benchmark: $33
Oppenheimer: $32
As of writing this, the stock is trading at $19.40. Still a huge discount to the price targets above. Part of this discount is **$GENI** recently had an upsized stock offering of 22 million shares. While the market reacted negatively, Oppenheimer came out and reiterated their PT of $32 as they saw this as a positive for the company to raise cash to continue to acquire companies that complement their offerings. Most recently they acquired Second Spectrum (Augmented reality and tracking technology backed by Steve Ballmer), and Fanhub (free to play games).
TLDR: **$GENI** is the the pick and shovel data provider to all the favorite sports betting books including $DKNG, and the only publicly traded sports betting data provider in one of the fastest growing segments in the US market. With a huge moat, Exclusive partnership with the NFL, and partnerships with hundreds of other sports leagues and sports betting books why try picking a winner when you can invest in the data provider that supplies them all?
*Edit* It was also brought to my attention I was lacking bear cases. The only bear case I can think of is that GENI overpaid for the NFL contract. My rebuttal is while Sportradar had it from 2015 to 2020, they were not able to take full advantage of sports gambling revenue as it was not prominent or legal in most states. This is rapidly changing and GENI has built in 5% of revenue from any sports book that uses their data. As gambling continues to grow so will Genius Sports revenue. Another element of the partnership with Genius Sports gives the company the right to distribute live audiovisual game feeds to sportsbooks in international markets, while it will also represent the NFL’s legalized sports betting advertising inventory across the league’s owned and operated digital platforms domestically and internationally.
These aspects along with great exposure for the company via the NFL and Genius Sports ability to entrench their technology into the leagues technology make this deal worth it IMO albeit the high price tag.
If you have any other bear cases that I have not thought of please comment below.
| 185 |
tgood87
| 1,624,552,615 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/o74lks/genius_sports_geni_picks_shovels_for_sports/
|
o74lks
|
h2x607g
|
I think GENI might be worth a gamble (pun intended) over the next year or two, I could see the stock price continuing to climb given fair winds from the sector and overall market. I'm less enthused about it long term though. Margins stink and I just don't think there is enough money to be made in the 'sports betting data provider' niche. Compare them to another data provider, Zillow, which provides data to a wider market, has much better margins, multiple income streams and a clean balance sheet.
| 12 |
spirgnob
| 1,624,563,672 |
Genius Sports $GENI- Picks & Shovels for Sports Gambling
|
disclosure: 1000 shares and 2500 warrants
Here is the ONLY* way to play the pick and shovel side of the rapidly growing sports gambling segment: Genius Sports **$GENI**
*edit* *Competitor Sportradar is in process of traditional IPO but no date has been set. They had a failed merge with a SPAC recently most likely due to the high valuation and in my opinion the loss of the NFL contract. If the IPO is at a decent valuation this will be another good play on the picks and shovels part of sports gambling. GENI and Sportradar have a duopoly on the market.
Genius Sports is the official data, technology and commercial partner that powers the global ecosystem connecting sports, betting and media.
They are the trusted partner to over 400 sports organizations globally, capturing the highest quality data for many of the world’s largest leagues and federations such as the NFL, EPL, FIBA, NCAA, NASCAR, AFA and PGA.
Not only are they partners with the sports leagues, they are partners with the 300 of the world’s largest sportsbooks brands, and media outlets:
**Sports:** NFL, NBA, Premier League, NCAA, Football Data Co, FIBA, Euroleague Basketball, PGA
**Betting:** Bet365, Flutter, William Hill, Betway, Draftkings
**Media:** NFL, CBS All Access, Pizza Hut, Michigan Lottery, MLB, POINTSBET, FanDuel, BETMGM, Caesers Sportsbook, Volvo
Not only are they partnered with the NFL but **$GENI** won the exclusive distribution rights for NFL official data in April. They beat out their only main competitor, Sportradar. In addition to data rights, the partnership includes adjacent agreements such as video streaming rights to international (non-US) sportsbooks. $GENI will also support the NFL’s data collection and advertising capabilities while also helping monitor suspicious activity to maintain integrity.
This exclusive deal validates Genius Sports competitive position as a core cog in the global sports betting industry, where global sportsbook operators rely on data feeds distributed by **$GENI**
1st Quarter Earnings $GENI reported 1st quarter earnings on May 20th and raised full year 2021 revenue guidance by 35%
-Q1 revenue increased 52% year-over-year to $53.7m
-First quarter group Adj. EBITDA up 414% year-over year to $9.3m (net loss of $5.3m)
-Raised FY2021 group revenue guidance from $190m to $250m-$260m
-Announced a six-year strategic partnership with the National Football League
-Entered into a two-year marketing partnership with FanDuel to deliver data-driven, targeted advertising
-Announced the acquisitions of two leading technology companies, FanHub and Second Spectrum, diversifying our offering and enhancing capabilities
-Appointed sports industry leader and former Turner President, David Levy, as Genius Sports’ new Chairman. GROWTH
Gross Gaming Revenue expected to nearly double from $31B in 2020 to $59B by 2025 (via H2 Gambling Capital). These numbers do not include Canada who just passed a federal bill to legalize sports gambling across the country – Consider Canada as a second California for population.
**$GENI** looks to take advantage of this with 120% EBITDA growth CAGR from 2020-2022.
**$GENI** has also proven their growth over the past several years: $88m in 2018, $115m in 2019, $149.7m in 2020. As previously stated they have increased their 2021F from $190m to $250-$260m, already surpassing their 2022F of $238M.
**MOAT**
**$GENI** is the leading exclusive content and data provider for data acquisition and data monetization:
-They are the mission critical supplier to sports betting operators
-Provide exclusive, official data to sports betting operators worldwide with risk management and trading solutions
-They acquire exclusive, official rights to sports data from major leagues and federations
**$GENI** is one of two players (and the only publicly traded one for now) of scale providing full-service provision: # of events covered, # of sports covered, Sport League Services, One stop shop betting services, media solutions, Streaming solutions.
Their Technology and scale provide high barriers to entry:
-1500 employees across 6 continents
-450 employees in technology and trading
-7,000 statisticians and agents
-650+ long term partnerships with sports and sportsbooks
-$110m+ invested in proprietary technology
-Their technology exchange for rights means **$GENI** becomes fully embedded and hard to replace (150+ integrations)
-Analyze risk and manage markets, probabilities and results for 240k+ events every year
-Highly customizable software to manage every aspect of a sportsbook’s data and trading offering: outsourced sports wagering at scale
**OFFICIAL DATA**
**$GENI** has the feed of live sports statistics that is sanctioned by the sports for collection and distribution (BIG DEAL).
Why that matters:
Matters to sports – it goes to the very heart of their funding
Matters to sportsbooks – only official data gives them the security of the supply they need
Matters to regulators – protects consumers
Matters to investors – the cost of sports data is built into their model, contributing to our high barriers to entry
Anecdotal: Genius Sports is so important to Draftkings that it is listed in their risk factors
**Coverage**
**$GENI** has been covered by a handful of analysts who have all given this a buy rating with PTs in the high 20’s and low 30s:
Goldman Sachs: $31
Craig Hallum: $30
Needham & Co: $28
Benchmark: $33
Oppenheimer: $32
As of writing this, the stock is trading at $19.40. Still a huge discount to the price targets above. Part of this discount is **$GENI** recently had an upsized stock offering of 22 million shares. While the market reacted negatively, Oppenheimer came out and reiterated their PT of $32 as they saw this as a positive for the company to raise cash to continue to acquire companies that complement their offerings. Most recently they acquired Second Spectrum (Augmented reality and tracking technology backed by Steve Ballmer), and Fanhub (free to play games).
TLDR: **$GENI** is the the pick and shovel data provider to all the favorite sports betting books including $DKNG, and the only publicly traded sports betting data provider in one of the fastest growing segments in the US market. With a huge moat, Exclusive partnership with the NFL, and partnerships with hundreds of other sports leagues and sports betting books why try picking a winner when you can invest in the data provider that supplies them all?
*Edit* It was also brought to my attention I was lacking bear cases. The only bear case I can think of is that GENI overpaid for the NFL contract. My rebuttal is while Sportradar had it from 2015 to 2020, they were not able to take full advantage of sports gambling revenue as it was not prominent or legal in most states. This is rapidly changing and GENI has built in 5% of revenue from any sports book that uses their data. As gambling continues to grow so will Genius Sports revenue. Another element of the partnership with Genius Sports gives the company the right to distribute live audiovisual game feeds to sportsbooks in international markets, while it will also represent the NFL’s legalized sports betting advertising inventory across the league’s owned and operated digital platforms domestically and internationally.
These aspects along with great exposure for the company via the NFL and Genius Sports ability to entrench their technology into the leagues technology make this deal worth it IMO albeit the high price tag.
If you have any other bear cases that I have not thought of please comment below.
| 185 |
tgood87
| 1,624,552,615 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/o74lks/genius_sports_geni_picks_shovels_for_sports/
|
n6fysa
|
gx6wwcl
|
ark uses models? i thought cathy talked to god. 😂
| 293 |
dfreinc
| 1,620,331,883 |
In just 3 months, Tesla has issued 80% of the shares ARK's valuation model projected they would issue through 2025.
|
Their model is beyond amateurish. Tesla share count at the end of Q1 was 963.3M, up from 960M at the end of Q4. This is just 700K away from ARK's 964M 2025 projected share count.
Those are only the outstanding shares. They missed Tesla's diluted share count by over 100M in their newest model. And before anyone mentions possible buybacks, their model already includes a $300 billion cash pile in 2025 to pad their EV/EBITDA PT. No room for buybacks in their modeled capital allocation.
That's just what's provably wrong with the model. Will Tesla create a human ride hail service with 3x more revenue than Uber in less than 5 years? Will Tesla become the most profitable insurance company in the US in under 5 years? Will Tesla sell sedans and crossovers at the same gross margins of Ferrari? I can't say, but these are all standard assumptions made in ARK's "bear case" -- An odd context for the term.
I wouldn't be so crass if they actually learned from their mistakes, but they don't. Their year end 2019 model projected Tesla would issue 30 million more shares through 2024; 900M to 930M split adjusted. They issued 55M in 2020 alone. 34M were attributable to capital raises. Maybe that would be a good time to step back and check what the diluted share count would be in the event Tesla hit their PT? I could almost forgive a hobby investor missing the dilutive effect of, at the time, anti-dilutive convertibles and stock options. Not a firm like ARK, but a hobbyist. They brazenly miss their share count estimate, take no further look as to why they missed, and, by some miracle, totally miss the dilutive share count & effects plastered all over Tesla's filings since Q1 2020.
To be blunt, these guys are either dumb or deceitful. To those who invest in ARK funds, this is the level of DD you get. Caveat emptor.
Sources for the lazy: [https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k\_20201231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k_20201231.htm)
[https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k\_20191231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k_20191231.htm)
[https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model](https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model)
| 272 |
thri54
| 1,620,330,775 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/n6fysa/in_just_3_months_tesla_has_issued_80_of_the/
|
n6fysa
|
gx730zm
|
Ark's "models" = a marketing tool.
They're intentionally ridiculous because that creates excess discussion. It's an example of "there is no such thing as negative attention" in the online click-driven world.
| 96 |
cbus20122
| 1,620,334,398 |
In just 3 months, Tesla has issued 80% of the shares ARK's valuation model projected they would issue through 2025.
|
Their model is beyond amateurish. Tesla share count at the end of Q1 was 963.3M, up from 960M at the end of Q4. This is just 700K away from ARK's 964M 2025 projected share count.
Those are only the outstanding shares. They missed Tesla's diluted share count by over 100M in their newest model. And before anyone mentions possible buybacks, their model already includes a $300 billion cash pile in 2025 to pad their EV/EBITDA PT. No room for buybacks in their modeled capital allocation.
That's just what's provably wrong with the model. Will Tesla create a human ride hail service with 3x more revenue than Uber in less than 5 years? Will Tesla become the most profitable insurance company in the US in under 5 years? Will Tesla sell sedans and crossovers at the same gross margins of Ferrari? I can't say, but these are all standard assumptions made in ARK's "bear case" -- An odd context for the term.
I wouldn't be so crass if they actually learned from their mistakes, but they don't. Their year end 2019 model projected Tesla would issue 30 million more shares through 2024; 900M to 930M split adjusted. They issued 55M in 2020 alone. 34M were attributable to capital raises. Maybe that would be a good time to step back and check what the diluted share count would be in the event Tesla hit their PT? I could almost forgive a hobby investor missing the dilutive effect of, at the time, anti-dilutive convertibles and stock options. Not a firm like ARK, but a hobbyist. They brazenly miss their share count estimate, take no further look as to why they missed, and, by some miracle, totally miss the dilutive share count & effects plastered all over Tesla's filings since Q1 2020.
To be blunt, these guys are either dumb or deceitful. To those who invest in ARK funds, this is the level of DD you get. Caveat emptor.
Sources for the lazy: [https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k\_20201231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k_20201231.htm)
[https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k\_20191231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k_20191231.htm)
[https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model](https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model)
| 272 |
thri54
| 1,620,330,775 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/n6fysa/in_just_3_months_tesla_has_issued_80_of_the/
|
n6fysa
|
gx7dos9
|
ARK is a shitshow, but bring on the downvotes. TSLA is overvalued by 5-10x, and once that bubble pops, Cathie will be exposed as a hack
| 82 |
Random_Name_Whoa
| 1,620,338,982 |
In just 3 months, Tesla has issued 80% of the shares ARK's valuation model projected they would issue through 2025.
|
Their model is beyond amateurish. Tesla share count at the end of Q1 was 963.3M, up from 960M at the end of Q4. This is just 700K away from ARK's 964M 2025 projected share count.
Those are only the outstanding shares. They missed Tesla's diluted share count by over 100M in their newest model. And before anyone mentions possible buybacks, their model already includes a $300 billion cash pile in 2025 to pad their EV/EBITDA PT. No room for buybacks in their modeled capital allocation.
That's just what's provably wrong with the model. Will Tesla create a human ride hail service with 3x more revenue than Uber in less than 5 years? Will Tesla become the most profitable insurance company in the US in under 5 years? Will Tesla sell sedans and crossovers at the same gross margins of Ferrari? I can't say, but these are all standard assumptions made in ARK's "bear case" -- An odd context for the term.
I wouldn't be so crass if they actually learned from their mistakes, but they don't. Their year end 2019 model projected Tesla would issue 30 million more shares through 2024; 900M to 930M split adjusted. They issued 55M in 2020 alone. 34M were attributable to capital raises. Maybe that would be a good time to step back and check what the diluted share count would be in the event Tesla hit their PT? I could almost forgive a hobby investor missing the dilutive effect of, at the time, anti-dilutive convertibles and stock options. Not a firm like ARK, but a hobbyist. They brazenly miss their share count estimate, take no further look as to why they missed, and, by some miracle, totally miss the dilutive share count & effects plastered all over Tesla's filings since Q1 2020.
To be blunt, these guys are either dumb or deceitful. To those who invest in ARK funds, this is the level of DD you get. Caveat emptor.
Sources for the lazy: [https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k\_20201231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k_20201231.htm)
[https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k\_20191231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k_20191231.htm)
[https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model](https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model)
| 272 |
thri54
| 1,620,330,775 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/n6fysa/in_just_3_months_tesla_has_issued_80_of_the/
|
n6fysa
|
gx75ytd
|
As soon as I started actually reading Ark’s projections, I noped the fuck out of holding their shares. Their DD is beyond ridiculous. I admittedly still read their yearly report as it contains some interesting data on trends and gets the mind churning, but their projections always go into absurd territory, especially with Tesla.
| 27 |
hugsfunny
| 1,620,335,612 |
In just 3 months, Tesla has issued 80% of the shares ARK's valuation model projected they would issue through 2025.
|
Their model is beyond amateurish. Tesla share count at the end of Q1 was 963.3M, up from 960M at the end of Q4. This is just 700K away from ARK's 964M 2025 projected share count.
Those are only the outstanding shares. They missed Tesla's diluted share count by over 100M in their newest model. And before anyone mentions possible buybacks, their model already includes a $300 billion cash pile in 2025 to pad their EV/EBITDA PT. No room for buybacks in their modeled capital allocation.
That's just what's provably wrong with the model. Will Tesla create a human ride hail service with 3x more revenue than Uber in less than 5 years? Will Tesla become the most profitable insurance company in the US in under 5 years? Will Tesla sell sedans and crossovers at the same gross margins of Ferrari? I can't say, but these are all standard assumptions made in ARK's "bear case" -- An odd context for the term.
I wouldn't be so crass if they actually learned from their mistakes, but they don't. Their year end 2019 model projected Tesla would issue 30 million more shares through 2024; 900M to 930M split adjusted. They issued 55M in 2020 alone. 34M were attributable to capital raises. Maybe that would be a good time to step back and check what the diluted share count would be in the event Tesla hit their PT? I could almost forgive a hobby investor missing the dilutive effect of, at the time, anti-dilutive convertibles and stock options. Not a firm like ARK, but a hobbyist. They brazenly miss their share count estimate, take no further look as to why they missed, and, by some miracle, totally miss the dilutive share count & effects plastered all over Tesla's filings since Q1 2020.
To be blunt, these guys are either dumb or deceitful. To those who invest in ARK funds, this is the level of DD you get. Caveat emptor.
Sources for the lazy: [https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k\_20201231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k_20201231.htm)
[https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k\_20191231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k_20191231.htm)
[https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model](https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model)
| 272 |
thri54
| 1,620,330,775 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/n6fysa/in_just_3_months_tesla_has_issued_80_of_the/
|
n6fysa
|
gx7kost
|
I commented on the ARK $3000 prediction that even the bears at ARK have a cocaine habit, and I stand by it.
| 20 |
egowritingcheques
| 1,620,342,254 |
In just 3 months, Tesla has issued 80% of the shares ARK's valuation model projected they would issue through 2025.
|
Their model is beyond amateurish. Tesla share count at the end of Q1 was 963.3M, up from 960M at the end of Q4. This is just 700K away from ARK's 964M 2025 projected share count.
Those are only the outstanding shares. They missed Tesla's diluted share count by over 100M in their newest model. And before anyone mentions possible buybacks, their model already includes a $300 billion cash pile in 2025 to pad their EV/EBITDA PT. No room for buybacks in their modeled capital allocation.
That's just what's provably wrong with the model. Will Tesla create a human ride hail service with 3x more revenue than Uber in less than 5 years? Will Tesla become the most profitable insurance company in the US in under 5 years? Will Tesla sell sedans and crossovers at the same gross margins of Ferrari? I can't say, but these are all standard assumptions made in ARK's "bear case" -- An odd context for the term.
I wouldn't be so crass if they actually learned from their mistakes, but they don't. Their year end 2019 model projected Tesla would issue 30 million more shares through 2024; 900M to 930M split adjusted. They issued 55M in 2020 alone. 34M were attributable to capital raises. Maybe that would be a good time to step back and check what the diluted share count would be in the event Tesla hit their PT? I could almost forgive a hobby investor missing the dilutive effect of, at the time, anti-dilutive convertibles and stock options. Not a firm like ARK, but a hobbyist. They brazenly miss their share count estimate, take no further look as to why they missed, and, by some miracle, totally miss the dilutive share count & effects plastered all over Tesla's filings since Q1 2020.
To be blunt, these guys are either dumb or deceitful. To those who invest in ARK funds, this is the level of DD you get. Caveat emptor.
Sources for the lazy: [https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k\_20201231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k_20201231.htm)
[https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k\_20191231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k_20191231.htm)
[https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model](https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model)
| 272 |
thri54
| 1,620,330,775 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/n6fysa/in_just_3_months_tesla_has_issued_80_of_the/
|
n6fysa
|
gx943pp
|
I will remember all the bears that shit talked now, in 1 or 2 years remind me
| 6 |
HOLDAMC
| 1,620,377,320 |
In just 3 months, Tesla has issued 80% of the shares ARK's valuation model projected they would issue through 2025.
|
Their model is beyond amateurish. Tesla share count at the end of Q1 was 963.3M, up from 960M at the end of Q4. This is just 700K away from ARK's 964M 2025 projected share count.
Those are only the outstanding shares. They missed Tesla's diluted share count by over 100M in their newest model. And before anyone mentions possible buybacks, their model already includes a $300 billion cash pile in 2025 to pad their EV/EBITDA PT. No room for buybacks in their modeled capital allocation.
That's just what's provably wrong with the model. Will Tesla create a human ride hail service with 3x more revenue than Uber in less than 5 years? Will Tesla become the most profitable insurance company in the US in under 5 years? Will Tesla sell sedans and crossovers at the same gross margins of Ferrari? I can't say, but these are all standard assumptions made in ARK's "bear case" -- An odd context for the term.
I wouldn't be so crass if they actually learned from their mistakes, but they don't. Their year end 2019 model projected Tesla would issue 30 million more shares through 2024; 900M to 930M split adjusted. They issued 55M in 2020 alone. 34M were attributable to capital raises. Maybe that would be a good time to step back and check what the diluted share count would be in the event Tesla hit their PT? I could almost forgive a hobby investor missing the dilutive effect of, at the time, anti-dilutive convertibles and stock options. Not a firm like ARK, but a hobbyist. They brazenly miss their share count estimate, take no further look as to why they missed, and, by some miracle, totally miss the dilutive share count & effects plastered all over Tesla's filings since Q1 2020.
To be blunt, these guys are either dumb or deceitful. To those who invest in ARK funds, this is the level of DD you get. Caveat emptor.
Sources for the lazy: [https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k\_20201231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k_20201231.htm)
[https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k\_20191231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k_20191231.htm)
[https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model](https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model)
| 272 |
thri54
| 1,620,330,775 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/n6fysa/in_just_3_months_tesla_has_issued_80_of_the/
|
n6fysa
|
gx7muq1
|
Her TSLA bear case was $1500 or something crazy, that should have been a big turn off for people.
| 8 |
SSJ4_cyclist
| 1,620,343,315 |
In just 3 months, Tesla has issued 80% of the shares ARK's valuation model projected they would issue through 2025.
|
Their model is beyond amateurish. Tesla share count at the end of Q1 was 963.3M, up from 960M at the end of Q4. This is just 700K away from ARK's 964M 2025 projected share count.
Those are only the outstanding shares. They missed Tesla's diluted share count by over 100M in their newest model. And before anyone mentions possible buybacks, their model already includes a $300 billion cash pile in 2025 to pad their EV/EBITDA PT. No room for buybacks in their modeled capital allocation.
That's just what's provably wrong with the model. Will Tesla create a human ride hail service with 3x more revenue than Uber in less than 5 years? Will Tesla become the most profitable insurance company in the US in under 5 years? Will Tesla sell sedans and crossovers at the same gross margins of Ferrari? I can't say, but these are all standard assumptions made in ARK's "bear case" -- An odd context for the term.
I wouldn't be so crass if they actually learned from their mistakes, but they don't. Their year end 2019 model projected Tesla would issue 30 million more shares through 2024; 900M to 930M split adjusted. They issued 55M in 2020 alone. 34M were attributable to capital raises. Maybe that would be a good time to step back and check what the diluted share count would be in the event Tesla hit their PT? I could almost forgive a hobby investor missing the dilutive effect of, at the time, anti-dilutive convertibles and stock options. Not a firm like ARK, but a hobbyist. They brazenly miss their share count estimate, take no further look as to why they missed, and, by some miracle, totally miss the dilutive share count & effects plastered all over Tesla's filings since Q1 2020.
To be blunt, these guys are either dumb or deceitful. To those who invest in ARK funds, this is the level of DD you get. Caveat emptor.
Sources for the lazy: [https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k\_20201231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k_20201231.htm)
[https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k\_20191231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k_20191231.htm)
[https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model](https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model)
| 272 |
thri54
| 1,620,330,775 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/n6fysa/in_just_3_months_tesla_has_issued_80_of_the/
|
n6fysa
|
gx6z5hl
|
The reason Tesla did the raises was because of the crazy increase in share price. They took advantage of it to get themselves enough money to expand even faster. That, and Musk’s options plan, which was also triggered by the share price increase.
So, as a shareholder, I would love for them to dilute even more, in similar circumstances.
| 18 |
m-sasha
| 1,620,332,801 |
In just 3 months, Tesla has issued 80% of the shares ARK's valuation model projected they would issue through 2025.
|
Their model is beyond amateurish. Tesla share count at the end of Q1 was 963.3M, up from 960M at the end of Q4. This is just 700K away from ARK's 964M 2025 projected share count.
Those are only the outstanding shares. They missed Tesla's diluted share count by over 100M in their newest model. And before anyone mentions possible buybacks, their model already includes a $300 billion cash pile in 2025 to pad their EV/EBITDA PT. No room for buybacks in their modeled capital allocation.
That's just what's provably wrong with the model. Will Tesla create a human ride hail service with 3x more revenue than Uber in less than 5 years? Will Tesla become the most profitable insurance company in the US in under 5 years? Will Tesla sell sedans and crossovers at the same gross margins of Ferrari? I can't say, but these are all standard assumptions made in ARK's "bear case" -- An odd context for the term.
I wouldn't be so crass if they actually learned from their mistakes, but they don't. Their year end 2019 model projected Tesla would issue 30 million more shares through 2024; 900M to 930M split adjusted. They issued 55M in 2020 alone. 34M were attributable to capital raises. Maybe that would be a good time to step back and check what the diluted share count would be in the event Tesla hit their PT? I could almost forgive a hobby investor missing the dilutive effect of, at the time, anti-dilutive convertibles and stock options. Not a firm like ARK, but a hobbyist. They brazenly miss their share count estimate, take no further look as to why they missed, and, by some miracle, totally miss the dilutive share count & effects plastered all over Tesla's filings since Q1 2020.
To be blunt, these guys are either dumb or deceitful. To those who invest in ARK funds, this is the level of DD you get. Caveat emptor.
Sources for the lazy: [https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k\_20201231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k_20201231.htm)
[https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k\_20191231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k_20191231.htm)
[https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model](https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model)
| 272 |
thri54
| 1,620,330,775 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/n6fysa/in_just_3_months_tesla_has_issued_80_of_the/
|
n6fysa
|
gx6xlhu
|
At least they offer public facing models. Most funds/analysts stick their finger in the air and guess a number that will help them unload their bags or drop a price so they can create a position.
| 18 |
neothedreamer
| 1,620,332,172 |
In just 3 months, Tesla has issued 80% of the shares ARK's valuation model projected they would issue through 2025.
|
Their model is beyond amateurish. Tesla share count at the end of Q1 was 963.3M, up from 960M at the end of Q4. This is just 700K away from ARK's 964M 2025 projected share count.
Those are only the outstanding shares. They missed Tesla's diluted share count by over 100M in their newest model. And before anyone mentions possible buybacks, their model already includes a $300 billion cash pile in 2025 to pad their EV/EBITDA PT. No room for buybacks in their modeled capital allocation.
That's just what's provably wrong with the model. Will Tesla create a human ride hail service with 3x more revenue than Uber in less than 5 years? Will Tesla become the most profitable insurance company in the US in under 5 years? Will Tesla sell sedans and crossovers at the same gross margins of Ferrari? I can't say, but these are all standard assumptions made in ARK's "bear case" -- An odd context for the term.
I wouldn't be so crass if they actually learned from their mistakes, but they don't. Their year end 2019 model projected Tesla would issue 30 million more shares through 2024; 900M to 930M split adjusted. They issued 55M in 2020 alone. 34M were attributable to capital raises. Maybe that would be a good time to step back and check what the diluted share count would be in the event Tesla hit their PT? I could almost forgive a hobby investor missing the dilutive effect of, at the time, anti-dilutive convertibles and stock options. Not a firm like ARK, but a hobbyist. They brazenly miss their share count estimate, take no further look as to why they missed, and, by some miracle, totally miss the dilutive share count & effects plastered all over Tesla's filings since Q1 2020.
To be blunt, these guys are either dumb or deceitful. To those who invest in ARK funds, this is the level of DD you get. Caveat emptor.
Sources for the lazy: [https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k\_20201231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k_20201231.htm)
[https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k\_20191231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k_20191231.htm)
[https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model](https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model)
| 272 |
thri54
| 1,620,330,775 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/n6fysa/in_just_3_months_tesla_has_issued_80_of_the/
|
n6fysa
|
gx7w24k
|
Tesla is going to be the next Enron and ark/cathie are in on the con game.
| 5 |
rusbus720
| 1,620,348,000 |
In just 3 months, Tesla has issued 80% of the shares ARK's valuation model projected they would issue through 2025.
|
Their model is beyond amateurish. Tesla share count at the end of Q1 was 963.3M, up from 960M at the end of Q4. This is just 700K away from ARK's 964M 2025 projected share count.
Those are only the outstanding shares. They missed Tesla's diluted share count by over 100M in their newest model. And before anyone mentions possible buybacks, their model already includes a $300 billion cash pile in 2025 to pad their EV/EBITDA PT. No room for buybacks in their modeled capital allocation.
That's just what's provably wrong with the model. Will Tesla create a human ride hail service with 3x more revenue than Uber in less than 5 years? Will Tesla become the most profitable insurance company in the US in under 5 years? Will Tesla sell sedans and crossovers at the same gross margins of Ferrari? I can't say, but these are all standard assumptions made in ARK's "bear case" -- An odd context for the term.
I wouldn't be so crass if they actually learned from their mistakes, but they don't. Their year end 2019 model projected Tesla would issue 30 million more shares through 2024; 900M to 930M split adjusted. They issued 55M in 2020 alone. 34M were attributable to capital raises. Maybe that would be a good time to step back and check what the diluted share count would be in the event Tesla hit their PT? I could almost forgive a hobby investor missing the dilutive effect of, at the time, anti-dilutive convertibles and stock options. Not a firm like ARK, but a hobbyist. They brazenly miss their share count estimate, take no further look as to why they missed, and, by some miracle, totally miss the dilutive share count & effects plastered all over Tesla's filings since Q1 2020.
To be blunt, these guys are either dumb or deceitful. To those who invest in ARK funds, this is the level of DD you get. Caveat emptor.
Sources for the lazy: [https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k\_20201231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459021004599/tsla-10k_20201231.htm)
[https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k\_20191231.htm](https://www.sec.gov/Archives/edgar/data/0001318605/000156459020004475/tsla-10k_20191231.htm)
[https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model](https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model)
| 272 |
thri54
| 1,620,330,775 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/n6fysa/in_just_3_months_tesla_has_issued_80_of_the/
|
n6822k
|
gx66zg6
|
I don't think there is any play in PPE without acquisitions. Since PPE is critical, it is not like anything they produce will go up in price or affect earnings. They will need to come up with new products. And if you go by CDC guidance where all the cleaning and extreme sanitization is deemed unnecessary, then I don't think there is anything there long term. I think coronavirus plays are cooling off, if they haven't already. Like every time a company posted a vaccine for it, the stock would go up %200 and then tank for the next month.
| 14 |
DrebinofPoliceSquad
| 1,620,321,202 |
What Are Your PPE Manufacturer Plays?
|
Tech earnings are receiving all the hype recently, and if you guys are like me, you’re looking for stocks to get into at low prices, and ride out the growth (we’re all aiming for the next TSLA). While tech like TSLA is always in the news, I’m starting to think more about COVID stocks and those who provide COVID related supplies, because let’s face it, Coronavirus is not over and spikes in India, Brazil, and even the EU are unfortunate examples that immediate medical response and prevention measures are still needed.
Some may look at PPE as a summer 2020 trend but that is far from true and PPE stocks will continue to perform well. One that I came across recently is Optec International (OTC:OPTI), a manufacturing company of LED and PPE product. OPTI announced really impressive financials this week, [4391% YOY Q3 growth](https://otcmarkets.com/stock/OPTI/news/OPTEC-International-Reports-4391-Year-over-Year-Revenue-Increase-for-the-3rd-Quarter-2021?id=301349) and revenue at $11 million. OPTI’s been making a slew of acquisitions, but one that I’m interested in is a company called WeShield. They have audited revenues of $55 million in 2020 and projected revenues of over [$100 million for 2021](https://www.otcmarkets.com/stock/OPTI/news/OPTEC-International-Inc-To-Acquire-WeShield-An-Established-AI-Driven-NY-MedTech-Company-In-PPE-Space?id=295925). The company says this growth is due to proprietary AI tech.
Either way, OPTI is an example of an affordable PPE stock that I have on my radar, today they’re trading at around $0.09 a share. Other suppliers to keep in mind from an investing standpoint are 3M (MMM), DuPont (DD), and Owens & Minor (OMI) - these are top PPE manufacturers and suppliers. 3M is being traded at just under $200, with DuPont at $79 and Owens at $35. These companies are established healthcare suppliers with Owens & Minor, for example, being established in 1882. And like I was saying above, the demand for PPE IS NOT going anywhere. In April, Plastic News published an article citing Owens’ performance and stated that the pandemic will continue to boost the medical supply market as health systems expand their PPE supply.
I genuinely think that PPE is going overlooked and that there are exciting new companies that will emerge in the medical supplier space. Interested in hearing other PPE plays or your guys take.
| 188 |
JoannieStiver
| 1,620,309,974 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/n6822k/what_are_your_ppe_manufacturer_plays/
|
n6822k
|
gx5hxmj
|
There's a Canadian company nanotex or nanoclean or something. They have a proprietary use of a compound that provides microbacterial protection for X amount of time. That's going to be used in a commercial setting to get people back working in offices. I just heard about it moments ago so I will update this later. But might be a good long play. I do have a pre bias because the owner of the company is from my reserve lol
| 10 |
kevlorneswath
| 1,620,310,565 |
What Are Your PPE Manufacturer Plays?
|
Tech earnings are receiving all the hype recently, and if you guys are like me, you’re looking for stocks to get into at low prices, and ride out the growth (we’re all aiming for the next TSLA). While tech like TSLA is always in the news, I’m starting to think more about COVID stocks and those who provide COVID related supplies, because let’s face it, Coronavirus is not over and spikes in India, Brazil, and even the EU are unfortunate examples that immediate medical response and prevention measures are still needed.
Some may look at PPE as a summer 2020 trend but that is far from true and PPE stocks will continue to perform well. One that I came across recently is Optec International (OTC:OPTI), a manufacturing company of LED and PPE product. OPTI announced really impressive financials this week, [4391% YOY Q3 growth](https://otcmarkets.com/stock/OPTI/news/OPTEC-International-Reports-4391-Year-over-Year-Revenue-Increase-for-the-3rd-Quarter-2021?id=301349) and revenue at $11 million. OPTI’s been making a slew of acquisitions, but one that I’m interested in is a company called WeShield. They have audited revenues of $55 million in 2020 and projected revenues of over [$100 million for 2021](https://www.otcmarkets.com/stock/OPTI/news/OPTEC-International-Inc-To-Acquire-WeShield-An-Established-AI-Driven-NY-MedTech-Company-In-PPE-Space?id=295925). The company says this growth is due to proprietary AI tech.
Either way, OPTI is an example of an affordable PPE stock that I have on my radar, today they’re trading at around $0.09 a share. Other suppliers to keep in mind from an investing standpoint are 3M (MMM), DuPont (DD), and Owens & Minor (OMI) - these are top PPE manufacturers and suppliers. 3M is being traded at just under $200, with DuPont at $79 and Owens at $35. These companies are established healthcare suppliers with Owens & Minor, for example, being established in 1882. And like I was saying above, the demand for PPE IS NOT going anywhere. In April, Plastic News published an article citing Owens’ performance and stated that the pandemic will continue to boost the medical supply market as health systems expand their PPE supply.
I genuinely think that PPE is going overlooked and that there are exciting new companies that will emerge in the medical supplier space. Interested in hearing other PPE plays or your guys take.
| 188 |
JoannieStiver
| 1,620,309,974 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/n6822k/what_are_your_ppe_manufacturer_plays/
|
n6822k
|
gx6ak0x
|
I’m in MRS.V (MSNVF for USD) long, CEO just had an interview saying they’re looking forward to upcoming gov spending in last Q2 - Q4 looking to secure another big contract. Already have one secured and we have a good idea what their Q1 revenues will be and they look like they’ll be very strong.
| 5 |
HgFrLr
| 1,620,322,685 |
What Are Your PPE Manufacturer Plays?
|
Tech earnings are receiving all the hype recently, and if you guys are like me, you’re looking for stocks to get into at low prices, and ride out the growth (we’re all aiming for the next TSLA). While tech like TSLA is always in the news, I’m starting to think more about COVID stocks and those who provide COVID related supplies, because let’s face it, Coronavirus is not over and spikes in India, Brazil, and even the EU are unfortunate examples that immediate medical response and prevention measures are still needed.
Some may look at PPE as a summer 2020 trend but that is far from true and PPE stocks will continue to perform well. One that I came across recently is Optec International (OTC:OPTI), a manufacturing company of LED and PPE product. OPTI announced really impressive financials this week, [4391% YOY Q3 growth](https://otcmarkets.com/stock/OPTI/news/OPTEC-International-Reports-4391-Year-over-Year-Revenue-Increase-for-the-3rd-Quarter-2021?id=301349) and revenue at $11 million. OPTI’s been making a slew of acquisitions, but one that I’m interested in is a company called WeShield. They have audited revenues of $55 million in 2020 and projected revenues of over [$100 million for 2021](https://www.otcmarkets.com/stock/OPTI/news/OPTEC-International-Inc-To-Acquire-WeShield-An-Established-AI-Driven-NY-MedTech-Company-In-PPE-Space?id=295925). The company says this growth is due to proprietary AI tech.
Either way, OPTI is an example of an affordable PPE stock that I have on my radar, today they’re trading at around $0.09 a share. Other suppliers to keep in mind from an investing standpoint are 3M (MMM), DuPont (DD), and Owens & Minor (OMI) - these are top PPE manufacturers and suppliers. 3M is being traded at just under $200, with DuPont at $79 and Owens at $35. These companies are established healthcare suppliers with Owens & Minor, for example, being established in 1882. And like I was saying above, the demand for PPE IS NOT going anywhere. In April, Plastic News published an article citing Owens’ performance and stated that the pandemic will continue to boost the medical supply market as health systems expand their PPE supply.
I genuinely think that PPE is going overlooked and that there are exciting new companies that will emerge in the medical supplier space. Interested in hearing other PPE plays or your guys take.
| 188 |
JoannieStiver
| 1,620,309,974 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/n6822k/what_are_your_ppe_manufacturer_plays/
|
mx1aby
|
gvlz4xn
|
From a strategy/competition perspective I've always wondered how much potential Microsoft has to eat Alteryx's lunch.
1. Power Query, Power Pivot, and Power BI can easily do all the of the same data transformation/modeling/blending/reporting without buying any licenses. It can't mimic Alteryx's data science packages but does any professional actually use those instead of python/R?
2. Alteryx has much friendlier UI/UX but the MS Office team has been doing an incredible job with Office 365 making it super user friendly and powerful. I could easily see them creating a slick O365 product for codeless data blending and analytics. Or just tie Power Apps, Flow, and Data Factory together into a single, simple UX.
3. Adding an Alteryx copycat to the O365 family with out-of-the-box connectivity to all the other O365 services seems like a huge perk. Seamless integration between Excel, One Drive, Power BI, and Active Directory sounds super nice to me.
Anecdotally, I'm Alteryx Core certified and fluent in M and python. A lot of times for data transformation I'll go with power query just because the native Excel integration makes it quick and easy. For more advanced jobs I'll go to python for the flexibility. The only standout thing about Alteryx to me is its user friendliness which I think Microsoft is more than capable of matching at some point.
| 37 |
ImprovisedTaxShelter
| 1,619,211,146 |
My Alteryx (AYX) DD: This isn't a dip to buy, it's part of their long decline.
|
After a fly-by-night post a few days ago said Alteryx was a buy, I decided to do some DD. I've wanted to for awhile, at the time of this writing I owned AYX (buying ~$70 back in 2019) and it seemed like the stock could do no wrong as it exploded to ATHs (~$178) in Mid-2020. However, it's currently trading at $84 and the question is, is this a dip worth buying or is it finally time to cut off my AYX position? Personally, I've disliked the product when I've seen it and dislike their lack of R&D. When they become "old" feeling, I don't think they'll survive. I think they may already be at that point. Also, I heard a rumor but don't want to make it seem bigger than it is so I'll be adding some hypotheticals below.
**Disclaimer:** After doing this research I no longer hold any position in AYX.
**R/Investing TLDR:** I've already sold my AYX shares
**R/WSB Risky TLDR:** and will take a short position (buying puts for post earnings and after next quarter's earnings)
Most of my numbers come from [their most recent 10-K](https://investor.alteryx.com/financials/sec-filings/default.aspx).
**Bull case:**
AYX is growing. Their "dollar based net expansion" rate is above 100% at 122%, which fits comfortably around [the Docusign/Cloudflare zone](https://softwareequity.com/the-impact-of-net-retention-on-valuation-for-public-saas-companies/). Not bad. However, this metric has been shrinking for 2 years now and if anything, it shows they don't know how to improve this metric any longer. They've dropped 1-2% per quarter every quarter for 2 whole years. Because they do trailing 4 quarters, it's actually lower than 122% right this moment but we don't know exactly how much.
They have nice case studies. They have grown customers up to 7083 customers, and revenue to $495.3M (+18.5%). Guidance for ARR is $555-565M for this year. Their margins are awesome at 91%.
**Bear case:**
The co-founder stepped down to [bring on a new CEO](https://www.nasdaq.com/articles/alteryx-ayx-appoints-new-ceo-raises-q3-top-line-outlook-2020-10-06). This is typically something you'd do when your company was at a new stage of it's life. That stage is sometimes "fuck R&D, just increase sales/marketing and get this to as many companies as possible." I think that's where we are, and I'll show it below.
Additionally, the new CEO had to [instantly fire the CRO for offensive tweets](https://seekingalpha.com/news/3664513-alteryx-shares-drop-after-chief-revenue-officer-resigns).
Now I'm going to get into the real meat. What started this whole thing? The rumor I heard is that some larger companies aren't interested in renewing anymore, and I think we've seen that already in the numbers. I'll do some analysis below but the main question is: do you think this is a huge signal that other companies are starting to drop AYX, or is this just a temporary blip and the new CEO is going to come up with new valuable solutions? Based on the middling CEO above, and the lack of R&D that I'll highlight below, my thought is AYX is going to have trouble retaining customers moving forward.
The strategy straight from their 10k is:
* "to increase our current customer base of approximately 7,100 customers through an active “land and expand” strategy." Cool, but that means they need to both land AND keep in order to expand.
Their revenue is growing, but if you look at their subscription revenue only, it's only growing by 3%, compared to their other services growing 37%. That means most of their revenue growth isn't new contracts or customers or even added users within contracts, it's added services. These services have an 85% margin so I expect their 91% margins to start to drop. I'm much more concerned with their actual growth looking to be closer to 3% in subscription revenue. That 3% number has been **dropping** every year!
* "We plan to expand our online and offline marketing efforts to increase demand for our platform and awareness of our brand. We also plan to continue to invest in growing both our direct sales teams and indirect sales channels." Boo. I don't think they're to that point as a company yet, yet their numbers show that they are definitely spending most of their money on marketing/sales. Currently, 51% of their expenses are spent on marketing. In fact, R&D has been the smallest part of their expenses every year since they went public. That doesn't make sense to me. This is a personal feeling but it feels like they're not continuing to develop what customers may need in the future.
* "with an increased focus on Global 2000 companies" Here's the big one. In their 10k they specify that they have ~750 of the top 2000 companies, and that this is their strategy going forward. What if those big customers start to drop off?
If my thesis is true that big companies don't quite jive with AYX and may start leaving or shrinking their contracts, this could be really bad for AYX especially since it's their top focus.
AYX charges $5195/user/year for designers and $2100/user/year for others. The average contract value is hard to pinpoint, but we can look through the years at a few analyses and one of my own. From the S1 in 2017, [an analyst](https://medium.com/@alexfclayton/alteryx-s-1-breakdown-4a711683f6c) stated that annual contract value was $40.7K. In 2019, [another analyst](https://www.forbes.com/sites/robertdefrancesco/2019/04/24/alteryx-empowers-customers-to-turn-data-into-actionable-insights/?sh=2951aedd4690) said a typical new customer comes in at an average deal size of $10,000-$11,000. If we just divide revenue by customers we get $70k/customer. However, larger customers are obviously larger since they pay per user. In 2020, [another analyst](https://www.fool.com/investing/2020/06/29/why-alteryx-focusing-large-companies-fuel-growth.aspx) said that 33% of their revenue is from the Global 2000, so using the 750 number from their 10k that gets us to $220k/customer.
However this quote gives us a better baseline for a top customer of AYX: "Last year, the number of customers with annual recurring revenue (ARR) of more than $1 million more than doubled, while the number of transactions worth more than $500,000 tripled." The biggest customers are probably worth at least $1M if not more.
Finally though, what if one of the really really big customers leave (going back to my rumor)? Someone with multiple teams adding up to 1000 analysts? Using the S1 link above, at the time they stated "no customer had **more than** 10% of their total revenue." That probably means that at least one customer **DID** have up to 10% of their total revenue. If that's the case, that huge contract could have been worth **$3.7M** based on revenue at that time (years ago), and it could be worth more now.
I want to check that figure: Let's say a major company has ~14k corporate workers, maybe 10% of them max would be analysts or desire access to those tools. Some of them would be normal users while some would be design users. Using some rough assumptions, 9% * 14k * $2100 + 1% * 14k * $5195 would be around $3.3M. I think the $3.7M ARR figure is at least reasonable for a large customer.
Finally, the average contract length is 2 years for an AYX customer. A lot of the big companies are coming up on contract renewal decisions. One point against this is: I've searched major companies job postings with "Alteryx" in the description, and a lot of them still exist.
**Bottom line:** what would happen if a large, $3.7M ARR contract left AYX tomorrow? Not that much by itself.
But, if you believe it's a signal for other large companies to do the same, and you don't think they have enough new customer revenue (maybe ~3% and dropping each year?) to make up for it, and their expansion/service revenue is higher cost/lower margin, and their R&D won't save them because they haven't focused on it enough, then this is bad for AYX.
If you think it's just one company and doesn't matter because its a rumor, then this is your time to buy.
I think it's a signal that things are about to get worse for AYX and I've already sold my shares.
| 166 |
Ouiju
| 1,619,201,124 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/mx1aby/my_alteryx_ayx_dd_this_isnt_a_dip_to_buy_its_part/
|
mx1aby
|
gvm61k6
|
Quality (thought provoking) dd
I have simar views on tableau (mitigated by the sf acquisition) and slack and their ability to compete with Microsoft's broad suite of products
Businesses really want to keep this stuff simple and deal with as few vendors as possible.
| 18 |
un_francais
| 1,619,214,426 |
My Alteryx (AYX) DD: This isn't a dip to buy, it's part of their long decline.
|
After a fly-by-night post a few days ago said Alteryx was a buy, I decided to do some DD. I've wanted to for awhile, at the time of this writing I owned AYX (buying ~$70 back in 2019) and it seemed like the stock could do no wrong as it exploded to ATHs (~$178) in Mid-2020. However, it's currently trading at $84 and the question is, is this a dip worth buying or is it finally time to cut off my AYX position? Personally, I've disliked the product when I've seen it and dislike their lack of R&D. When they become "old" feeling, I don't think they'll survive. I think they may already be at that point. Also, I heard a rumor but don't want to make it seem bigger than it is so I'll be adding some hypotheticals below.
**Disclaimer:** After doing this research I no longer hold any position in AYX.
**R/Investing TLDR:** I've already sold my AYX shares
**R/WSB Risky TLDR:** and will take a short position (buying puts for post earnings and after next quarter's earnings)
Most of my numbers come from [their most recent 10-K](https://investor.alteryx.com/financials/sec-filings/default.aspx).
**Bull case:**
AYX is growing. Their "dollar based net expansion" rate is above 100% at 122%, which fits comfortably around [the Docusign/Cloudflare zone](https://softwareequity.com/the-impact-of-net-retention-on-valuation-for-public-saas-companies/). Not bad. However, this metric has been shrinking for 2 years now and if anything, it shows they don't know how to improve this metric any longer. They've dropped 1-2% per quarter every quarter for 2 whole years. Because they do trailing 4 quarters, it's actually lower than 122% right this moment but we don't know exactly how much.
They have nice case studies. They have grown customers up to 7083 customers, and revenue to $495.3M (+18.5%). Guidance for ARR is $555-565M for this year. Their margins are awesome at 91%.
**Bear case:**
The co-founder stepped down to [bring on a new CEO](https://www.nasdaq.com/articles/alteryx-ayx-appoints-new-ceo-raises-q3-top-line-outlook-2020-10-06). This is typically something you'd do when your company was at a new stage of it's life. That stage is sometimes "fuck R&D, just increase sales/marketing and get this to as many companies as possible." I think that's where we are, and I'll show it below.
Additionally, the new CEO had to [instantly fire the CRO for offensive tweets](https://seekingalpha.com/news/3664513-alteryx-shares-drop-after-chief-revenue-officer-resigns).
Now I'm going to get into the real meat. What started this whole thing? The rumor I heard is that some larger companies aren't interested in renewing anymore, and I think we've seen that already in the numbers. I'll do some analysis below but the main question is: do you think this is a huge signal that other companies are starting to drop AYX, or is this just a temporary blip and the new CEO is going to come up with new valuable solutions? Based on the middling CEO above, and the lack of R&D that I'll highlight below, my thought is AYX is going to have trouble retaining customers moving forward.
The strategy straight from their 10k is:
* "to increase our current customer base of approximately 7,100 customers through an active “land and expand” strategy." Cool, but that means they need to both land AND keep in order to expand.
Their revenue is growing, but if you look at their subscription revenue only, it's only growing by 3%, compared to their other services growing 37%. That means most of their revenue growth isn't new contracts or customers or even added users within contracts, it's added services. These services have an 85% margin so I expect their 91% margins to start to drop. I'm much more concerned with their actual growth looking to be closer to 3% in subscription revenue. That 3% number has been **dropping** every year!
* "We plan to expand our online and offline marketing efforts to increase demand for our platform and awareness of our brand. We also plan to continue to invest in growing both our direct sales teams and indirect sales channels." Boo. I don't think they're to that point as a company yet, yet their numbers show that they are definitely spending most of their money on marketing/sales. Currently, 51% of their expenses are spent on marketing. In fact, R&D has been the smallest part of their expenses every year since they went public. That doesn't make sense to me. This is a personal feeling but it feels like they're not continuing to develop what customers may need in the future.
* "with an increased focus on Global 2000 companies" Here's the big one. In their 10k they specify that they have ~750 of the top 2000 companies, and that this is their strategy going forward. What if those big customers start to drop off?
If my thesis is true that big companies don't quite jive with AYX and may start leaving or shrinking their contracts, this could be really bad for AYX especially since it's their top focus.
AYX charges $5195/user/year for designers and $2100/user/year for others. The average contract value is hard to pinpoint, but we can look through the years at a few analyses and one of my own. From the S1 in 2017, [an analyst](https://medium.com/@alexfclayton/alteryx-s-1-breakdown-4a711683f6c) stated that annual contract value was $40.7K. In 2019, [another analyst](https://www.forbes.com/sites/robertdefrancesco/2019/04/24/alteryx-empowers-customers-to-turn-data-into-actionable-insights/?sh=2951aedd4690) said a typical new customer comes in at an average deal size of $10,000-$11,000. If we just divide revenue by customers we get $70k/customer. However, larger customers are obviously larger since they pay per user. In 2020, [another analyst](https://www.fool.com/investing/2020/06/29/why-alteryx-focusing-large-companies-fuel-growth.aspx) said that 33% of their revenue is from the Global 2000, so using the 750 number from their 10k that gets us to $220k/customer.
However this quote gives us a better baseline for a top customer of AYX: "Last year, the number of customers with annual recurring revenue (ARR) of more than $1 million more than doubled, while the number of transactions worth more than $500,000 tripled." The biggest customers are probably worth at least $1M if not more.
Finally though, what if one of the really really big customers leave (going back to my rumor)? Someone with multiple teams adding up to 1000 analysts? Using the S1 link above, at the time they stated "no customer had **more than** 10% of their total revenue." That probably means that at least one customer **DID** have up to 10% of their total revenue. If that's the case, that huge contract could have been worth **$3.7M** based on revenue at that time (years ago), and it could be worth more now.
I want to check that figure: Let's say a major company has ~14k corporate workers, maybe 10% of them max would be analysts or desire access to those tools. Some of them would be normal users while some would be design users. Using some rough assumptions, 9% * 14k * $2100 + 1% * 14k * $5195 would be around $3.3M. I think the $3.7M ARR figure is at least reasonable for a large customer.
Finally, the average contract length is 2 years for an AYX customer. A lot of the big companies are coming up on contract renewal decisions. One point against this is: I've searched major companies job postings with "Alteryx" in the description, and a lot of them still exist.
**Bottom line:** what would happen if a large, $3.7M ARR contract left AYX tomorrow? Not that much by itself.
But, if you believe it's a signal for other large companies to do the same, and you don't think they have enough new customer revenue (maybe ~3% and dropping each year?) to make up for it, and their expansion/service revenue is higher cost/lower margin, and their R&D won't save them because they haven't focused on it enough, then this is bad for AYX.
If you think it's just one company and doesn't matter because its a rumor, then this is your time to buy.
I think it's a signal that things are about to get worse for AYX and I've already sold my shares.
| 166 |
Ouiju
| 1,619,201,124 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/mx1aby/my_alteryx_ayx_dd_this_isnt_a_dip_to_buy_its_part/
|
mx1aby
|
gvnghen
|
I’ve worked at Big 4 firms and now in private. Alteryx still has a good presence and seems to be picking up momentum in the tax world.
| 16 |
TooManyTerps
| 1,619,240,942 |
My Alteryx (AYX) DD: This isn't a dip to buy, it's part of their long decline.
|
After a fly-by-night post a few days ago said Alteryx was a buy, I decided to do some DD. I've wanted to for awhile, at the time of this writing I owned AYX (buying ~$70 back in 2019) and it seemed like the stock could do no wrong as it exploded to ATHs (~$178) in Mid-2020. However, it's currently trading at $84 and the question is, is this a dip worth buying or is it finally time to cut off my AYX position? Personally, I've disliked the product when I've seen it and dislike their lack of R&D. When they become "old" feeling, I don't think they'll survive. I think they may already be at that point. Also, I heard a rumor but don't want to make it seem bigger than it is so I'll be adding some hypotheticals below.
**Disclaimer:** After doing this research I no longer hold any position in AYX.
**R/Investing TLDR:** I've already sold my AYX shares
**R/WSB Risky TLDR:** and will take a short position (buying puts for post earnings and after next quarter's earnings)
Most of my numbers come from [their most recent 10-K](https://investor.alteryx.com/financials/sec-filings/default.aspx).
**Bull case:**
AYX is growing. Their "dollar based net expansion" rate is above 100% at 122%, which fits comfortably around [the Docusign/Cloudflare zone](https://softwareequity.com/the-impact-of-net-retention-on-valuation-for-public-saas-companies/). Not bad. However, this metric has been shrinking for 2 years now and if anything, it shows they don't know how to improve this metric any longer. They've dropped 1-2% per quarter every quarter for 2 whole years. Because they do trailing 4 quarters, it's actually lower than 122% right this moment but we don't know exactly how much.
They have nice case studies. They have grown customers up to 7083 customers, and revenue to $495.3M (+18.5%). Guidance for ARR is $555-565M for this year. Their margins are awesome at 91%.
**Bear case:**
The co-founder stepped down to [bring on a new CEO](https://www.nasdaq.com/articles/alteryx-ayx-appoints-new-ceo-raises-q3-top-line-outlook-2020-10-06). This is typically something you'd do when your company was at a new stage of it's life. That stage is sometimes "fuck R&D, just increase sales/marketing and get this to as many companies as possible." I think that's where we are, and I'll show it below.
Additionally, the new CEO had to [instantly fire the CRO for offensive tweets](https://seekingalpha.com/news/3664513-alteryx-shares-drop-after-chief-revenue-officer-resigns).
Now I'm going to get into the real meat. What started this whole thing? The rumor I heard is that some larger companies aren't interested in renewing anymore, and I think we've seen that already in the numbers. I'll do some analysis below but the main question is: do you think this is a huge signal that other companies are starting to drop AYX, or is this just a temporary blip and the new CEO is going to come up with new valuable solutions? Based on the middling CEO above, and the lack of R&D that I'll highlight below, my thought is AYX is going to have trouble retaining customers moving forward.
The strategy straight from their 10k is:
* "to increase our current customer base of approximately 7,100 customers through an active “land and expand” strategy." Cool, but that means they need to both land AND keep in order to expand.
Their revenue is growing, but if you look at their subscription revenue only, it's only growing by 3%, compared to their other services growing 37%. That means most of their revenue growth isn't new contracts or customers or even added users within contracts, it's added services. These services have an 85% margin so I expect their 91% margins to start to drop. I'm much more concerned with their actual growth looking to be closer to 3% in subscription revenue. That 3% number has been **dropping** every year!
* "We plan to expand our online and offline marketing efforts to increase demand for our platform and awareness of our brand. We also plan to continue to invest in growing both our direct sales teams and indirect sales channels." Boo. I don't think they're to that point as a company yet, yet their numbers show that they are definitely spending most of their money on marketing/sales. Currently, 51% of their expenses are spent on marketing. In fact, R&D has been the smallest part of their expenses every year since they went public. That doesn't make sense to me. This is a personal feeling but it feels like they're not continuing to develop what customers may need in the future.
* "with an increased focus on Global 2000 companies" Here's the big one. In their 10k they specify that they have ~750 of the top 2000 companies, and that this is their strategy going forward. What if those big customers start to drop off?
If my thesis is true that big companies don't quite jive with AYX and may start leaving or shrinking their contracts, this could be really bad for AYX especially since it's their top focus.
AYX charges $5195/user/year for designers and $2100/user/year for others. The average contract value is hard to pinpoint, but we can look through the years at a few analyses and one of my own. From the S1 in 2017, [an analyst](https://medium.com/@alexfclayton/alteryx-s-1-breakdown-4a711683f6c) stated that annual contract value was $40.7K. In 2019, [another analyst](https://www.forbes.com/sites/robertdefrancesco/2019/04/24/alteryx-empowers-customers-to-turn-data-into-actionable-insights/?sh=2951aedd4690) said a typical new customer comes in at an average deal size of $10,000-$11,000. If we just divide revenue by customers we get $70k/customer. However, larger customers are obviously larger since they pay per user. In 2020, [another analyst](https://www.fool.com/investing/2020/06/29/why-alteryx-focusing-large-companies-fuel-growth.aspx) said that 33% of their revenue is from the Global 2000, so using the 750 number from their 10k that gets us to $220k/customer.
However this quote gives us a better baseline for a top customer of AYX: "Last year, the number of customers with annual recurring revenue (ARR) of more than $1 million more than doubled, while the number of transactions worth more than $500,000 tripled." The biggest customers are probably worth at least $1M if not more.
Finally though, what if one of the really really big customers leave (going back to my rumor)? Someone with multiple teams adding up to 1000 analysts? Using the S1 link above, at the time they stated "no customer had **more than** 10% of their total revenue." That probably means that at least one customer **DID** have up to 10% of their total revenue. If that's the case, that huge contract could have been worth **$3.7M** based on revenue at that time (years ago), and it could be worth more now.
I want to check that figure: Let's say a major company has ~14k corporate workers, maybe 10% of them max would be analysts or desire access to those tools. Some of them would be normal users while some would be design users. Using some rough assumptions, 9% * 14k * $2100 + 1% * 14k * $5195 would be around $3.3M. I think the $3.7M ARR figure is at least reasonable for a large customer.
Finally, the average contract length is 2 years for an AYX customer. A lot of the big companies are coming up on contract renewal decisions. One point against this is: I've searched major companies job postings with "Alteryx" in the description, and a lot of them still exist.
**Bottom line:** what would happen if a large, $3.7M ARR contract left AYX tomorrow? Not that much by itself.
But, if you believe it's a signal for other large companies to do the same, and you don't think they have enough new customer revenue (maybe ~3% and dropping each year?) to make up for it, and their expansion/service revenue is higher cost/lower margin, and their R&D won't save them because they haven't focused on it enough, then this is bad for AYX.
If you think it's just one company and doesn't matter because its a rumor, then this is your time to buy.
I think it's a signal that things are about to get worse for AYX and I've already sold my shares.
| 166 |
Ouiju
| 1,619,201,124 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/mx1aby/my_alteryx_ayx_dd_this_isnt_a_dip_to_buy_its_part/
|
mx1aby
|
gvm8em9
|
From a stock price perspective, I think your take is spot on. Their growth is declining and they are EXPENSIVE, not justifying their costs.
However, I refute their not investing in the product. https://github.com/alteryx They have some novelty their pushing in the ML space hoping to get to the product.
If you read between the lines of their repo, they have some good ideas. The question is execution and to that growth says it all.
I hold no positions.
| 6 |
ImPrettyDum
| 1,619,215,583 |
My Alteryx (AYX) DD: This isn't a dip to buy, it's part of their long decline.
|
After a fly-by-night post a few days ago said Alteryx was a buy, I decided to do some DD. I've wanted to for awhile, at the time of this writing I owned AYX (buying ~$70 back in 2019) and it seemed like the stock could do no wrong as it exploded to ATHs (~$178) in Mid-2020. However, it's currently trading at $84 and the question is, is this a dip worth buying or is it finally time to cut off my AYX position? Personally, I've disliked the product when I've seen it and dislike their lack of R&D. When they become "old" feeling, I don't think they'll survive. I think they may already be at that point. Also, I heard a rumor but don't want to make it seem bigger than it is so I'll be adding some hypotheticals below.
**Disclaimer:** After doing this research I no longer hold any position in AYX.
**R/Investing TLDR:** I've already sold my AYX shares
**R/WSB Risky TLDR:** and will take a short position (buying puts for post earnings and after next quarter's earnings)
Most of my numbers come from [their most recent 10-K](https://investor.alteryx.com/financials/sec-filings/default.aspx).
**Bull case:**
AYX is growing. Their "dollar based net expansion" rate is above 100% at 122%, which fits comfortably around [the Docusign/Cloudflare zone](https://softwareequity.com/the-impact-of-net-retention-on-valuation-for-public-saas-companies/). Not bad. However, this metric has been shrinking for 2 years now and if anything, it shows they don't know how to improve this metric any longer. They've dropped 1-2% per quarter every quarter for 2 whole years. Because they do trailing 4 quarters, it's actually lower than 122% right this moment but we don't know exactly how much.
They have nice case studies. They have grown customers up to 7083 customers, and revenue to $495.3M (+18.5%). Guidance for ARR is $555-565M for this year. Their margins are awesome at 91%.
**Bear case:**
The co-founder stepped down to [bring on a new CEO](https://www.nasdaq.com/articles/alteryx-ayx-appoints-new-ceo-raises-q3-top-line-outlook-2020-10-06). This is typically something you'd do when your company was at a new stage of it's life. That stage is sometimes "fuck R&D, just increase sales/marketing and get this to as many companies as possible." I think that's where we are, and I'll show it below.
Additionally, the new CEO had to [instantly fire the CRO for offensive tweets](https://seekingalpha.com/news/3664513-alteryx-shares-drop-after-chief-revenue-officer-resigns).
Now I'm going to get into the real meat. What started this whole thing? The rumor I heard is that some larger companies aren't interested in renewing anymore, and I think we've seen that already in the numbers. I'll do some analysis below but the main question is: do you think this is a huge signal that other companies are starting to drop AYX, or is this just a temporary blip and the new CEO is going to come up with new valuable solutions? Based on the middling CEO above, and the lack of R&D that I'll highlight below, my thought is AYX is going to have trouble retaining customers moving forward.
The strategy straight from their 10k is:
* "to increase our current customer base of approximately 7,100 customers through an active “land and expand” strategy." Cool, but that means they need to both land AND keep in order to expand.
Their revenue is growing, but if you look at their subscription revenue only, it's only growing by 3%, compared to their other services growing 37%. That means most of their revenue growth isn't new contracts or customers or even added users within contracts, it's added services. These services have an 85% margin so I expect their 91% margins to start to drop. I'm much more concerned with their actual growth looking to be closer to 3% in subscription revenue. That 3% number has been **dropping** every year!
* "We plan to expand our online and offline marketing efforts to increase demand for our platform and awareness of our brand. We also plan to continue to invest in growing both our direct sales teams and indirect sales channels." Boo. I don't think they're to that point as a company yet, yet their numbers show that they are definitely spending most of their money on marketing/sales. Currently, 51% of their expenses are spent on marketing. In fact, R&D has been the smallest part of their expenses every year since they went public. That doesn't make sense to me. This is a personal feeling but it feels like they're not continuing to develop what customers may need in the future.
* "with an increased focus on Global 2000 companies" Here's the big one. In their 10k they specify that they have ~750 of the top 2000 companies, and that this is their strategy going forward. What if those big customers start to drop off?
If my thesis is true that big companies don't quite jive with AYX and may start leaving or shrinking their contracts, this could be really bad for AYX especially since it's their top focus.
AYX charges $5195/user/year for designers and $2100/user/year for others. The average contract value is hard to pinpoint, but we can look through the years at a few analyses and one of my own. From the S1 in 2017, [an analyst](https://medium.com/@alexfclayton/alteryx-s-1-breakdown-4a711683f6c) stated that annual contract value was $40.7K. In 2019, [another analyst](https://www.forbes.com/sites/robertdefrancesco/2019/04/24/alteryx-empowers-customers-to-turn-data-into-actionable-insights/?sh=2951aedd4690) said a typical new customer comes in at an average deal size of $10,000-$11,000. If we just divide revenue by customers we get $70k/customer. However, larger customers are obviously larger since they pay per user. In 2020, [another analyst](https://www.fool.com/investing/2020/06/29/why-alteryx-focusing-large-companies-fuel-growth.aspx) said that 33% of their revenue is from the Global 2000, so using the 750 number from their 10k that gets us to $220k/customer.
However this quote gives us a better baseline for a top customer of AYX: "Last year, the number of customers with annual recurring revenue (ARR) of more than $1 million more than doubled, while the number of transactions worth more than $500,000 tripled." The biggest customers are probably worth at least $1M if not more.
Finally though, what if one of the really really big customers leave (going back to my rumor)? Someone with multiple teams adding up to 1000 analysts? Using the S1 link above, at the time they stated "no customer had **more than** 10% of their total revenue." That probably means that at least one customer **DID** have up to 10% of their total revenue. If that's the case, that huge contract could have been worth **$3.7M** based on revenue at that time (years ago), and it could be worth more now.
I want to check that figure: Let's say a major company has ~14k corporate workers, maybe 10% of them max would be analysts or desire access to those tools. Some of them would be normal users while some would be design users. Using some rough assumptions, 9% * 14k * $2100 + 1% * 14k * $5195 would be around $3.3M. I think the $3.7M ARR figure is at least reasonable for a large customer.
Finally, the average contract length is 2 years for an AYX customer. A lot of the big companies are coming up on contract renewal decisions. One point against this is: I've searched major companies job postings with "Alteryx" in the description, and a lot of them still exist.
**Bottom line:** what would happen if a large, $3.7M ARR contract left AYX tomorrow? Not that much by itself.
But, if you believe it's a signal for other large companies to do the same, and you don't think they have enough new customer revenue (maybe ~3% and dropping each year?) to make up for it, and their expansion/service revenue is higher cost/lower margin, and their R&D won't save them because they haven't focused on it enough, then this is bad for AYX.
If you think it's just one company and doesn't matter because its a rumor, then this is your time to buy.
I think it's a signal that things are about to get worse for AYX and I've already sold my shares.
| 166 |
Ouiju
| 1,619,201,124 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/mx1aby/my_alteryx_ayx_dd_this_isnt_a_dip_to_buy_its_part/
|
m6zzhm
|
gr8pk1o
|
I also like this stock, it's been on my watchlist for a while. I work with Universal Robots which are collaborative robots for flexible automation, and with MIR Robots which are autonomous carts for warehouses and factories, both owned by TER. I want to buy this stock, but intrisicaly it is still a little overvalued. I don't know if I should buy or wait a little longer.
| 9 |
Pathbauer1987
| 1,615,992,301 |
Research on Teradyne Inc, a stock seeing an increase in chatter over the last few weeks.
|
Teradyne Inc, Ticker: **TER (+38% mentions)**
Market cap: $19.5Bn
Teradyne Inc supplies automation test equipment for semiconductors, wireless products, data storage and complex electronic systems in the consumer electronic, automotive, industrial, communications and aerospace sector.
Essentially, the chip powering the phone or laptop you are reading this from has most likely been tested by Teradyne.
Teradynes biggest customers include Samsung, Qualcomm, Nvidia, Intel, Boeing, Texas Instruments, 3M, and IBM.
Don’t have time to read the whole thing? I’ll summarise below
3 main reasons why I like this stock:
* Overall semiconductor market future
* Finances and balance sheet
* Cathie Wood investment
2 possible downsides:
* Low future earnings forecasts
* Recent price volatility
Future
Almost everything requires a semiconductor now, and that will only grow further in the future, some of the biggest examples are:
* The majority of mobile phones sold nowadays are smartphones, and while that growth has slowed down over the last few years, 1.5 billion a year are still sold.
* The ecosystem surrounding mobile phones is growing rapidly, think tablets, smart watches, headphones, laptops, speakers.
* Internet-of-things devices are booming, think Alexa, smart lighting, ovens, fridges,heating, mirrors etc.
* Car technology (especially in electric cars) is mostly driven by semiconductor technology, shifting further and further away from analog technology
* Gaming, from Playstations to VR headsets, again all require semiconductor technology
* Automated manufacturing
Even without COVID, supply cannot keep up. There have been huge shortages this year for semiconductors causing pinches everywhere *(have you tried purchasing a PS5 recently?)* meaning lots of pent-up demand, even without, a number of HUGE factories have been built or will be built that are expected to ramp up supply. examples of those:
* [Samsung’s $17bn factory](https://www.extremetech.com/computing/319926-samsung-files-documents-to-build-new-17-billion-fab-in-the-united-states)
* [TSM’s $12bn plant](https://www.fool.com/investing/2020/05/15/taiwan-semiconductor-to-build-a-12-billion-chip-pl.aspx)
* [Intel’s $7bn plant, completed in 2020](https://hexus.net/tech/news/cpu/145990-intel-fab-42-now-ready-pump-leading-edge-products/)
* [List of all current fabrication plants to give you an idea of size of market](https://en.wikipedia.org/wiki/List_of_semiconductor_fabrication_plants)
All of this will require automation and testing.
Long-term, it’s very safe to assume that irrespective of economic or technological shifts, semiconductor demand will not only sustain, but surge. A few things on the horizon that will likely affect this:
* 5G technology being rolled out worldwide
* Space technology & tourism growth
* AI & data technology
The biggest kicker? Teradyne provide the majority of the automation and testing for all of these sectors, meaning any growth here only benefits them.
Furthermore, to me they are also proofed from the whole *“economy opening up means a move away from tech“* as it’s not like people will stop using electronic devices, unlike companies like Zoom which will see a big drop in usership as normality returns.
Finances
Even during a COVID year, Teradyne grew revenues from $2.29bn to $3.12bn, an increase of 36%.
They grew their net income even further, going from $467m to $784m, an increase of 67%.
Earnings per share *(profit by number of shares)* also grew, from $2.6 to $4.28 (**+64%**) last year which is astounding. (*general consensus is anything above 25% growth is good).*
When taking the price of the stock into account, and looking at Price-to-Earnings ratio *(Price of the stock vs the earnings per share of a stock, the lower the better)* Teradyne has a PE ratio of 24.9x, which is way better than the industry average of 38x.
From a debt position, Teradyne is very healthy with an equity-to-debt ratio *(the lower the better, below 1 means more equity than debt)* of 0.18.
Cathie Wood Investment
Cathie Wood, the very aggressive bullish investor whos ETF [ARK Invest](https://finance.yahoo.com/quote/ARKK/performance/) saw returns of 152% last year, [has recently purchased a further 139,619 shares](https://247wallst.com/investing/2021/03/12/cathie-woods-ark-invest-buys-and-sells-3-12/) to add to the current position.
Extra purchasing here shows long-term confidence, as this was added after ARK had to rebalance and sell some Teradyne shares last year.
Possible Downsides
Some analysts are predicting modest future revenue growth at 5.8%, compared to the industry average of 16.2%.
Furthermore, the price this year has seen some large volatility, suffering from the sell-off that affected technology and growth stocks earlier this year. If more sell-offs ensue, this could cause the price to drop further in the short term.
Summary
Teradyne commands a large portion of a market that is only growing further every year. A financially healthy and well managed company, with high revenue and EPS growth, along with some strong investment backing. While there may be some volatility in the price of the stock short-term, long-term this company still has tremendous potential.
| 41 |
akokaz1
| 1,615,986,444 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/m6zzhm/research_on_teradyne_inc_a_stock_seeing_an/
|
m1nl5z
|
gqempsq
|
It’s not an IPO, it’s a DPO with no lockup period
| 61 |
Powderpuffgirl27
| 1,615,345,428 |
ROBLOX IPO $RBLX In Depth Analysis
|
**Roblox IPO ($RBLX) Analysis:**
*I am no expert on video games or Roblox, but after some research and digging these are my thoughts on this hyped up IPO launching tomorrow.*
**Intro:**
***Roblox*** is an online game platform and game creation system developed by Roblox Corporation. It allows users to program games and play games created by other users. Founded by David Baszucki and Erik Cassel in 2004 and released in 2006, the platform hosts user-created games of multiple genres coded in the programming language LUA.
*Roblox* is free-to-play, with in-game purchases available through a virtual currency called "Robux". As of August 2020, *Roblox* had over 164 million monthly active users, with it being played by over half of all children aged under 16 in the United States.
**Key Points:**
* Valuation raised from $4B to $29.5B last February
* Anyone can be a content developer and sell their content for in game currency called Robux. Roblox takes a 30% cut of this.
* In essence, Roblox is a platform for gaming creators to make content, similarly to YouTube or an Apple App Store
* In July of 2020, Roblox expected to pay out $250M to its developers.
* From 2019 to 2020 Roblox experienced a 68% Increase in revenue YoY.
* Daily active users from 2019 to 2020 grew from 17.6M to 31.3M, 43.8%
* $1.62M per Day Revenue (ARP)/ 31.3M Daily Active Users (DAU) = $0.05/user ARPDAU
* Casual games on the App store have an average of $0.10 ARPDAU, so a Roblox $0.05 ARPDAU is rather low.
* Majority of their users are not paying.
* Net losses grew from $50M to $206M from 2019 to 2020, with an increase in spending in their infrastructure trust and safety, R&D and general administration.
* Free cash flow grew from $6M in 2019 to $292.6M in 2020.
* Average user retention is 23 months in 2019 and 2020
* Lock up period for Roblox is 180 days, which means that employees and insiders cannot sell their shares.
Overall, I think that Roblox is a very popular gaming platform for young kids that has a good social aspect to it. They seem to have increased their spending in 'Trust and Safety' which is hugely important for younger aged gamers, no one wants a weirdo talking to their kids on Roblox. Roblox has a unique business model in the gaming industry that allows its users to create new content. As long as Roblox can continue to incentivize its creators, it should continue seeing a huge rate of growth.
The problems that I see is mainly the ARPDAU number. $0.05 ARPDAU seems to me to be pretty low compared to other popular gaming titles, however I am no expert. What that means to me is that the Roblox team is not monetizing the game very well. Hopefully, that changes and they can double or triple the ARPDAU.
Another issue I see is that the users have around a 23 month lifespan, so Roblox will continually need to refill their active user pool. From what I can see is 23 months is less than some other major gaming titles. Roblox is suited for kids under 13, and whether we like it or not, kids grow up fast and might find Roblox un-cool.
Roblox doesn't make me all that excited to be honest, and I won't be investing much money into this company long term until I see an increase in the ARPDAU. However something important that isn't talked about enough is the 'Lockup' period. Investors and insiders can't dump their shares as soon as this IPOs so us, retail investors, should do OK buying it. Will I buy $RBLX tomorrow? Of course! Will I invest more than a few % of my portfolio? Absolutely not! This is to hyped for the numbers, in my opinion. When in the markets there is greed, be fearful.
The truth is, no one knows what will happen tomorrow with $RBLX, but it will be fun to trade nevertheless!
| 133 |
prostockadvice
| 1,615,344,884 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/m1nl5z/roblox_ipo_rblx_in_depth_analysis/
|
m1nl5z
|
gqf1twz
|
Yeah... they haven’t generated a profit, and use a lot of non-gaap measurements in the S1. They haven’t been able to lower overhead yet, and expenses as a relative percentage of revenue have grown. And for whatever reason they included compensation expense related to stock/options in each expense category instead of really showing the components of each expense line item. And compensation expense is significant to each line. Their own estimate of fair value of the stock price is between 4 and $21 based on a Monte Carlo simulation they performed (which isn’t a typical method you see for valuing stock). Nonetheless, I’m staying away from this - no profits, a lot of hype, and not a very clear picture of how the ship is running.
| 21 |
atticus9899
| 1,615,355,065 |
ROBLOX IPO $RBLX In Depth Analysis
|
**Roblox IPO ($RBLX) Analysis:**
*I am no expert on video games or Roblox, but after some research and digging these are my thoughts on this hyped up IPO launching tomorrow.*
**Intro:**
***Roblox*** is an online game platform and game creation system developed by Roblox Corporation. It allows users to program games and play games created by other users. Founded by David Baszucki and Erik Cassel in 2004 and released in 2006, the platform hosts user-created games of multiple genres coded in the programming language LUA.
*Roblox* is free-to-play, with in-game purchases available through a virtual currency called "Robux". As of August 2020, *Roblox* had over 164 million monthly active users, with it being played by over half of all children aged under 16 in the United States.
**Key Points:**
* Valuation raised from $4B to $29.5B last February
* Anyone can be a content developer and sell their content for in game currency called Robux. Roblox takes a 30% cut of this.
* In essence, Roblox is a platform for gaming creators to make content, similarly to YouTube or an Apple App Store
* In July of 2020, Roblox expected to pay out $250M to its developers.
* From 2019 to 2020 Roblox experienced a 68% Increase in revenue YoY.
* Daily active users from 2019 to 2020 grew from 17.6M to 31.3M, 43.8%
* $1.62M per Day Revenue (ARP)/ 31.3M Daily Active Users (DAU) = $0.05/user ARPDAU
* Casual games on the App store have an average of $0.10 ARPDAU, so a Roblox $0.05 ARPDAU is rather low.
* Majority of their users are not paying.
* Net losses grew from $50M to $206M from 2019 to 2020, with an increase in spending in their infrastructure trust and safety, R&D and general administration.
* Free cash flow grew from $6M in 2019 to $292.6M in 2020.
* Average user retention is 23 months in 2019 and 2020
* Lock up period for Roblox is 180 days, which means that employees and insiders cannot sell their shares.
Overall, I think that Roblox is a very popular gaming platform for young kids that has a good social aspect to it. They seem to have increased their spending in 'Trust and Safety' which is hugely important for younger aged gamers, no one wants a weirdo talking to their kids on Roblox. Roblox has a unique business model in the gaming industry that allows its users to create new content. As long as Roblox can continue to incentivize its creators, it should continue seeing a huge rate of growth.
The problems that I see is mainly the ARPDAU number. $0.05 ARPDAU seems to me to be pretty low compared to other popular gaming titles, however I am no expert. What that means to me is that the Roblox team is not monetizing the game very well. Hopefully, that changes and they can double or triple the ARPDAU.
Another issue I see is that the users have around a 23 month lifespan, so Roblox will continually need to refill their active user pool. From what I can see is 23 months is less than some other major gaming titles. Roblox is suited for kids under 13, and whether we like it or not, kids grow up fast and might find Roblox un-cool.
Roblox doesn't make me all that excited to be honest, and I won't be investing much money into this company long term until I see an increase in the ARPDAU. However something important that isn't talked about enough is the 'Lockup' period. Investors and insiders can't dump their shares as soon as this IPOs so us, retail investors, should do OK buying it. Will I buy $RBLX tomorrow? Of course! Will I invest more than a few % of my portfolio? Absolutely not! This is to hyped for the numbers, in my opinion. When in the markets there is greed, be fearful.
The truth is, no one knows what will happen tomorrow with $RBLX, but it will be fun to trade nevertheless!
| 133 |
prostockadvice
| 1,615,344,884 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/m1nl5z/roblox_ipo_rblx_in_depth_analysis/
|
m1nl5z
|
gqfijwi
|
Roblox main source of income is parents forgetting to disable monthly “game gold” purchase once their kids hit 12 and realize they’re playing with toddlers.
It’s hard to get behind a company who pretty much sells virtual hats to kids.
| 24 |
ColonelWormhat
| 1,615,370,152 |
ROBLOX IPO $RBLX In Depth Analysis
|
**Roblox IPO ($RBLX) Analysis:**
*I am no expert on video games or Roblox, but after some research and digging these are my thoughts on this hyped up IPO launching tomorrow.*
**Intro:**
***Roblox*** is an online game platform and game creation system developed by Roblox Corporation. It allows users to program games and play games created by other users. Founded by David Baszucki and Erik Cassel in 2004 and released in 2006, the platform hosts user-created games of multiple genres coded in the programming language LUA.
*Roblox* is free-to-play, with in-game purchases available through a virtual currency called "Robux". As of August 2020, *Roblox* had over 164 million monthly active users, with it being played by over half of all children aged under 16 in the United States.
**Key Points:**
* Valuation raised from $4B to $29.5B last February
* Anyone can be a content developer and sell their content for in game currency called Robux. Roblox takes a 30% cut of this.
* In essence, Roblox is a platform for gaming creators to make content, similarly to YouTube or an Apple App Store
* In July of 2020, Roblox expected to pay out $250M to its developers.
* From 2019 to 2020 Roblox experienced a 68% Increase in revenue YoY.
* Daily active users from 2019 to 2020 grew from 17.6M to 31.3M, 43.8%
* $1.62M per Day Revenue (ARP)/ 31.3M Daily Active Users (DAU) = $0.05/user ARPDAU
* Casual games on the App store have an average of $0.10 ARPDAU, so a Roblox $0.05 ARPDAU is rather low.
* Majority of their users are not paying.
* Net losses grew from $50M to $206M from 2019 to 2020, with an increase in spending in their infrastructure trust and safety, R&D and general administration.
* Free cash flow grew from $6M in 2019 to $292.6M in 2020.
* Average user retention is 23 months in 2019 and 2020
* Lock up period for Roblox is 180 days, which means that employees and insiders cannot sell their shares.
Overall, I think that Roblox is a very popular gaming platform for young kids that has a good social aspect to it. They seem to have increased their spending in 'Trust and Safety' which is hugely important for younger aged gamers, no one wants a weirdo talking to their kids on Roblox. Roblox has a unique business model in the gaming industry that allows its users to create new content. As long as Roblox can continue to incentivize its creators, it should continue seeing a huge rate of growth.
The problems that I see is mainly the ARPDAU number. $0.05 ARPDAU seems to me to be pretty low compared to other popular gaming titles, however I am no expert. What that means to me is that the Roblox team is not monetizing the game very well. Hopefully, that changes and they can double or triple the ARPDAU.
Another issue I see is that the users have around a 23 month lifespan, so Roblox will continually need to refill their active user pool. From what I can see is 23 months is less than some other major gaming titles. Roblox is suited for kids under 13, and whether we like it or not, kids grow up fast and might find Roblox un-cool.
Roblox doesn't make me all that excited to be honest, and I won't be investing much money into this company long term until I see an increase in the ARPDAU. However something important that isn't talked about enough is the 'Lockup' period. Investors and insiders can't dump their shares as soon as this IPOs so us, retail investors, should do OK buying it. Will I buy $RBLX tomorrow? Of course! Will I invest more than a few % of my portfolio? Absolutely not! This is to hyped for the numbers, in my opinion. When in the markets there is greed, be fearful.
The truth is, no one knows what will happen tomorrow with $RBLX, but it will be fun to trade nevertheless!
| 133 |
prostockadvice
| 1,615,344,884 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/m1nl5z/roblox_ipo_rblx_in_depth_analysis/
|
m0zj8w
|
gqarjb4
|
These are good picks and refreshing to not see a bunch of high growth/high risk stocks.
I looked up 3M and KMB on FAST graphs. They look fairly valued which in this market really means undervalued, really hard to find that right now (even US “Value” stocks are pricey). KMB actually may be slightly undervalued. This may be what pushed me over the top to buy 3M.
Kroger is good too, you already pointed out the risks so more of a confidence play and more divorced from the fundamentals.
Thanks for the write up.
| 31 |
Investing8675309
| 1,615,267,954 |
Value with a focus on long-term dividend reinvestment / DD Stock Write-up
|
# KMB - Kimberly Clark / Dividend 3.47%
* The company's personal care segment could see a nice uptick as overall awareness for hygiene and cleanliness is increased, as well as more stringent requirements by services like cruise ships and airlines being implemented as the world opens back up.
* Their consumer tissue division also saw an increase in volume as the work-from-home trend was set into motion by covid, with a portion of these individuals working from home indefinitely.
* Their dividend growth has been steady for nearly 50 years with this year marking 49 straight years of dividend growth.
* A restructuring plan started back in 2018 should be wrapping up in 2021. This plan was meant to cut out unnecessary costs and to put the company on track for continued future growth. 2020 revenue grew by 3.7% to 19.1 billion with net income rising 9% YOY to 2.4 billion.
# O - Realty Income REIT / Dividend 4.65%
* Dividend is paid out monthly, designed to provide investors with reliable monthly income.
* Revenues and FFO per share are up YOY
* Very strong financials and management - they currently have a $3 billion unsecured revolving credit facility with an initial term that expires in 2023. There were no borrowings on its credit facility as of Dec 2020.
* Well diversified portfolio of properties and adapted to change quickly in the 2020 pandemic environment - they are expecting an acquisition volume of $3.25 billion in 2021 notably due to the company's solid financial position and investment pipeline.
# MMM - 3M / Dividend 3.21%
* People focused on their respirator masks and respirators as their bread and butter over the past year. This was a godsend for them, as they are now able to use their 2020 revenues from their safety/industrial segment as well as their healthcare segment to continue growth in their other segments.
* Their other segments include their transportation and electronics, as well as their consumer segment. Both are cyclically aligned segments and are yet to fully recover offering a very nice opportunity for growth.
* The stock trades on 15x its current FCF (free cash flow per share) - theoretically, they could pay over a 6% dividend with their current revenues and still be able to grow the business.
* A total of 56 hedge funds were holding the stock heading into Q4 of 2020, topping the all-time-highs of 52.
* They are "restructuring management for growth".
# MAIN - Main Street Capital / Dividend 6.7%
* Their dividend is paid out monthly.
* Although their net earnings were effected by the pandemic, they demonstrated they were able to withstand market volatility via their diversified investments and high liquidity.
* Over 80% dividend growth since IPO with a large span of investments across a number of different sectors.
* If you are looking for a way to gain exposure to the financial sector but hate to mess with big banks and other sketchy financial plays, this may be a good stock for you.
# KR - Kroger / Dividend 2.09%
* Digital sales jumping over 100% YOY - their online grocery segment is newly developed and will be in the works for years to come. Without going on a rant about why, I believe Amazon will begin to lose steam to smaller companies as they take back market share via investing in similar methods and technologies in order to deliver their own services and products in a similar way.
* They are currently invested in a number of improvements from their in-store and online technology to space optimization and store remodeling.
* I am not going to do a huge write up on this ticker, I just like the stock.
​
>Set up a DRIP by contacting investor relations for a particular company or contact your brokerage for whatever offers they may have regarding dividend reinvestment into certain securities. This is a great way to put your dividend payments to use early on as they can seem insignificant for those just starting out. Do not expect to live off of your dividend payments. Yet. Let them grow and roll profits from growth plays back into the positions you are holding. Do not worry about stock price as you will be receiving dividends on every dime of your investment, not to mention dollar cost averaging should keep your cost basis nice.
| 73 |
mrfilthynasty4141
| 1,615,267,052 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/m0zj8w/value_with_a_focus_on_longterm_dividend/
|
m0zj8w
|
gqb1z31
|
KMB also manufactures paper products for laboratory/healthcare operations (Kimtech or kimwipes)
| 7 |
indie_hedgehog
| 1,615,276,699 |
Value with a focus on long-term dividend reinvestment / DD Stock Write-up
|
# KMB - Kimberly Clark / Dividend 3.47%
* The company's personal care segment could see a nice uptick as overall awareness for hygiene and cleanliness is increased, as well as more stringent requirements by services like cruise ships and airlines being implemented as the world opens back up.
* Their consumer tissue division also saw an increase in volume as the work-from-home trend was set into motion by covid, with a portion of these individuals working from home indefinitely.
* Their dividend growth has been steady for nearly 50 years with this year marking 49 straight years of dividend growth.
* A restructuring plan started back in 2018 should be wrapping up in 2021. This plan was meant to cut out unnecessary costs and to put the company on track for continued future growth. 2020 revenue grew by 3.7% to 19.1 billion with net income rising 9% YOY to 2.4 billion.
# O - Realty Income REIT / Dividend 4.65%
* Dividend is paid out monthly, designed to provide investors with reliable monthly income.
* Revenues and FFO per share are up YOY
* Very strong financials and management - they currently have a $3 billion unsecured revolving credit facility with an initial term that expires in 2023. There were no borrowings on its credit facility as of Dec 2020.
* Well diversified portfolio of properties and adapted to change quickly in the 2020 pandemic environment - they are expecting an acquisition volume of $3.25 billion in 2021 notably due to the company's solid financial position and investment pipeline.
# MMM - 3M / Dividend 3.21%
* People focused on their respirator masks and respirators as their bread and butter over the past year. This was a godsend for them, as they are now able to use their 2020 revenues from their safety/industrial segment as well as their healthcare segment to continue growth in their other segments.
* Their other segments include their transportation and electronics, as well as their consumer segment. Both are cyclically aligned segments and are yet to fully recover offering a very nice opportunity for growth.
* The stock trades on 15x its current FCF (free cash flow per share) - theoretically, they could pay over a 6% dividend with their current revenues and still be able to grow the business.
* A total of 56 hedge funds were holding the stock heading into Q4 of 2020, topping the all-time-highs of 52.
* They are "restructuring management for growth".
# MAIN - Main Street Capital / Dividend 6.7%
* Their dividend is paid out monthly.
* Although their net earnings were effected by the pandemic, they demonstrated they were able to withstand market volatility via their diversified investments and high liquidity.
* Over 80% dividend growth since IPO with a large span of investments across a number of different sectors.
* If you are looking for a way to gain exposure to the financial sector but hate to mess with big banks and other sketchy financial plays, this may be a good stock for you.
# KR - Kroger / Dividend 2.09%
* Digital sales jumping over 100% YOY - their online grocery segment is newly developed and will be in the works for years to come. Without going on a rant about why, I believe Amazon will begin to lose steam to smaller companies as they take back market share via investing in similar methods and technologies in order to deliver their own services and products in a similar way.
* They are currently invested in a number of improvements from their in-store and online technology to space optimization and store remodeling.
* I am not going to do a huge write up on this ticker, I just like the stock.
​
>Set up a DRIP by contacting investor relations for a particular company or contact your brokerage for whatever offers they may have regarding dividend reinvestment into certain securities. This is a great way to put your dividend payments to use early on as they can seem insignificant for those just starting out. Do not expect to live off of your dividend payments. Yet. Let them grow and roll profits from growth plays back into the positions you are holding. Do not worry about stock price as you will be receiving dividends on every dime of your investment, not to mention dollar cost averaging should keep your cost basis nice.
| 73 |
mrfilthynasty4141
| 1,615,267,052 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/m0zj8w/value_with_a_focus_on_longterm_dividend/
|
m0zj8w
|
gqaz0vo
|
$O is stable and love the swings on it. Currently it’s on an upward swing.
| 6 |
BreakThemLikeWallace
| 1,615,274,026 |
Value with a focus on long-term dividend reinvestment / DD Stock Write-up
|
# KMB - Kimberly Clark / Dividend 3.47%
* The company's personal care segment could see a nice uptick as overall awareness for hygiene and cleanliness is increased, as well as more stringent requirements by services like cruise ships and airlines being implemented as the world opens back up.
* Their consumer tissue division also saw an increase in volume as the work-from-home trend was set into motion by covid, with a portion of these individuals working from home indefinitely.
* Their dividend growth has been steady for nearly 50 years with this year marking 49 straight years of dividend growth.
* A restructuring plan started back in 2018 should be wrapping up in 2021. This plan was meant to cut out unnecessary costs and to put the company on track for continued future growth. 2020 revenue grew by 3.7% to 19.1 billion with net income rising 9% YOY to 2.4 billion.
# O - Realty Income REIT / Dividend 4.65%
* Dividend is paid out monthly, designed to provide investors with reliable monthly income.
* Revenues and FFO per share are up YOY
* Very strong financials and management - they currently have a $3 billion unsecured revolving credit facility with an initial term that expires in 2023. There were no borrowings on its credit facility as of Dec 2020.
* Well diversified portfolio of properties and adapted to change quickly in the 2020 pandemic environment - they are expecting an acquisition volume of $3.25 billion in 2021 notably due to the company's solid financial position and investment pipeline.
# MMM - 3M / Dividend 3.21%
* People focused on their respirator masks and respirators as their bread and butter over the past year. This was a godsend for them, as they are now able to use their 2020 revenues from their safety/industrial segment as well as their healthcare segment to continue growth in their other segments.
* Their other segments include their transportation and electronics, as well as their consumer segment. Both are cyclically aligned segments and are yet to fully recover offering a very nice opportunity for growth.
* The stock trades on 15x its current FCF (free cash flow per share) - theoretically, they could pay over a 6% dividend with their current revenues and still be able to grow the business.
* A total of 56 hedge funds were holding the stock heading into Q4 of 2020, topping the all-time-highs of 52.
* They are "restructuring management for growth".
# MAIN - Main Street Capital / Dividend 6.7%
* Their dividend is paid out monthly.
* Although their net earnings were effected by the pandemic, they demonstrated they were able to withstand market volatility via their diversified investments and high liquidity.
* Over 80% dividend growth since IPO with a large span of investments across a number of different sectors.
* If you are looking for a way to gain exposure to the financial sector but hate to mess with big banks and other sketchy financial plays, this may be a good stock for you.
# KR - Kroger / Dividend 2.09%
* Digital sales jumping over 100% YOY - their online grocery segment is newly developed and will be in the works for years to come. Without going on a rant about why, I believe Amazon will begin to lose steam to smaller companies as they take back market share via investing in similar methods and technologies in order to deliver their own services and products in a similar way.
* They are currently invested in a number of improvements from their in-store and online technology to space optimization and store remodeling.
* I am not going to do a huge write up on this ticker, I just like the stock.
​
>Set up a DRIP by contacting investor relations for a particular company or contact your brokerage for whatever offers they may have regarding dividend reinvestment into certain securities. This is a great way to put your dividend payments to use early on as they can seem insignificant for those just starting out. Do not expect to live off of your dividend payments. Yet. Let them grow and roll profits from growth plays back into the positions you are holding. Do not worry about stock price as you will be receiving dividends on every dime of your investment, not to mention dollar cost averaging should keep your cost basis nice.
| 73 |
mrfilthynasty4141
| 1,615,267,052 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/m0zj8w/value_with_a_focus_on_longterm_dividend/
|
lysdir
|
gpvskt8
|
I'm sure it will be the next big short term meme stock. Getting pumped into infinity in the first week.
| 17 |
hambon99
| 1,615,015,458 |
DD: Upcoming Roblox $RBLX IPO Next Week (March 10th, 2021)
|
# Roblox (RBLX) IPO for March 10th, 2021
>**Disclaimer:** I am relatively new to trading and did this DD writeup to help me learn. None of the information here should be used as financial advice. I am mainly wanting to test my abilities and gain feedback on my assessment. Feel free to let me know what information you feel is good, bad, or missing! I welcome all criticisms!
# Info
* **Company:** Roblox Corporation - [https://www.roblox.com](https://www.roblox.com/)
* **Founded/Launched:** 2004/2006
* **CEO:** David Baszucki - [https://twitter.com/davidbaszucki](https://twitter.com/davidbaszucki)
* **HQ and Employees:** San Mateo, CA - 830 Employees
* **Monthly Active Users:** 150 Million as of July 2020
* **Age Range:** 50% of the community under 16 years old
# Summary
Roblox (RBLX) is a content creation gaming platform that allows users to develop a wide variety of mini-games and have other users play them through the Roblox Player. Creators can earn a virtual currency called Robux by selling various items to players which can then be converted into actual money at certain milestones.
*As of September 30th, 2020, Roblox had over 18 Million experiences for players.*
Robux can also be purchased directly from Roblox and used for various in-game items such as player customizations and game-specific power ups. Roblox offers a monthly subscription service called “Roblox Premium” where users can obtain exclusive items and a monthly supply of Robux.
*In 2020, Roblox was the 2nd most watched game on YouTube with 75 Billion views*
# Market Data
**IPO** [^(source)](https://www.marketwatch.com/investing/stock/rblx/ipo)
* **SEC Filing:** Feb 11th, 2021
* [https://www.sec.gov/Archives/edgar/data/1315098/000119312521038726/d87104ds1a.htm](https://www.sec.gov/Archives/edgar/data/1315098/000119312521038726/d87104ds1a.htm)
* **Exchange:** NYSE
* **Ticker:** RBLX
* **IPO Date:** March 10th
* **Est. Opening:** $45
* **Shares:** 198.9M
* **Sectors:** Tech
**Financials as of Sept 30th, 2020** ^(Source: Pre-Page 6 of Sec Filing)
* **Revenue:** $614M
* **Bookings:** $1.2B
* **Operating Cash Flow:** $345M
* **Net Loss:** $195M
**Valuation** [^(source)](https://venturebeat.com/2021/01/06/roblox-raises-520-million-at-29-5-billion-valuation-will-go-public-through-direct-listing/)
* **2018:** $2.5 Billion
* **2020:** $4.0 Billion (Series-G funding round $150M raised on Feb. 2020)
* **2021:** $29.5 Billion (Series-H funding round $520M Raised on Jan. 2021)
**Revenue** [^(source)](https://www.businessofapps.com/data/roblox-statistics/)
* **2017:** $45.7M || **2018:** $335M || **2019:** $435M
* **2020:** $613.9M as of Sept 30th, 2020
* **2021:** Projected $1.44 Billion to $1.52 Billion
**Shareholders as of Nov. 2020** [^(source)](https://techcrunch.com/2020/11/19/roblox-files-to-go-public/)
* **Altos Ventures:** 21.3%
* **CEO David Baszucki:** 12%
* **Meritech Capital:** 10.3%
* **Index Ventures:** 9.9%
* **Tiger Global:** 7.3%
* **First Round Capital:** 6.3%
**Growth** ^(Source: Prospectus Summary Pages 2-4 of SEC Filing)
* **Revenue**
* **2018 -> 2019:** 325.0M -> 508.4M (+56%)
* **2019 -> 2020:** 360.8M -> 613.9M (+70%) ^((9 Months ended Sept 30th for both years))
* **Bookings**
* **2018 -> 2019:** 499.0M -> 694.3M (+39%)
* **2019 -> 2020:** 458.0M -> 1.240B (+171%) ^((9 Months ended Sept 30th for both years))
* **Daily Active Users**
* **2018 -> 2019:** 12.0M to 17.6M (+47%)
* **2019 -> 2020:** 17.1M to 31.1M (+81%) ^((9 Months ended Sept 30th for both years))
* **Engagement Hours**
* **2018 -> 2019:** 9.4B to 13.7B (+45%)
* **2019 -> 2020:** 10.0B to 22.2B (+123%) ^((9 Months ended Sept 30th for both years))
**Risk Factors** ^(Source: Prospectus Summary Pages 9-10 of SEC Filing)
* Recent rapid growth may not be indicative of future growth.
* History of Net Losses that may not be able to achieve profitability in the future.
* Hard to predict financial situations quarter to quarter. Effected by seasonal demands
* Recent setbacks for business operations due to COVID-19 Outbreak
* Relies heavily on Mobile devices, hardware and networks that they do not control, and changes could affect user experience and retention
* Identified material weakness in internal control over financial reporting which resulted in restatement of their financial states for 2018 and 2019 and first 9 months in 2020.
* The public trading of the Class A common stock may be volatile and could, upon listing on the NYSE, decline significantly and rapidly.
* As of Jan. 2015, the executive officers, directors and holders of 5% or more of the Class A stock collectively own \~65.5% of the outstanding shares and 100% of the outstanding Class B common to maintain substantial control.
# Revenue Generation
Roblox generates revenue in several ways. Players purchase Robux directly for prices ranging from $4.99 to $99.99. Players can spend Robux on game-specific purchases that goes to the Creators with a 30% fee taken out.
Creators can exchange Robux for USD at a current rate $350 per 100,000 Robux as of March 4, 2020. To purchase 100,000 Robux would require 10 purchases of the $99.99 package (10k Robux each) for a total of $999.90.
Roblox also offers three subscription tiers ranging from $4.99 to $19.99 a month, which earns a player Robux and Exclusive store items.
Merchandise plays a role in revenue generation as well. Roblox offers clothing, figurines and gift cards which can be purchased online and in person from places like Amazon, Walmart, Target, and other retail locations.
# Growth Potential and Catalyst
The current outlook for Roblox to grow is promising. There are active investments being made in expanding the age range, international reach, monetization, and technical capabilities of the platform. By continuing to employ modern technology to improve the platform, higher quality experiences and content that appeals to older age demographics can be created.
Current international markets for Roblox include US, Canada, and the United Kingdom. Roblox is actively investing in technology that they hope will enhance their growth around the world. For example, they hope to use automated translation and built-in regional compliance tools to help scale into other global markets.
Monetization is another key component to Roblox growing. Recently Roblox Premium which offers a monthly subscription service to its users was added. Roblox actively works with its creator and developer community to help bring them improve their monetization, which in turn increases Roblox’s monetization. Roblox expects to work with leading brands to build unique marketing opportunities to the platform.
# Competitors and Differences
One of the things to keep in mind about Roblox itself is not a game, but a gaming platform and ecosystem of multiple gaming experiences. Over 18 million games can be launched from their website and played through a downloaded app on the user’s computer. Each game can be completely unique from every other game.
Roblox as a platform would more closely related to that of Steam (by Valve) or Epic Games Launcher (by Epic) or Origin (by EA). However, instead of purchasing games through this, a user simply launches whichever one of these free experiences they want at any time. There is no purchasing of the game like there is on the other mentioned platforms.
Roblox’s main difference is they use the underlying tools to create Roblox specific games utilizing their Software Development Kit (SDK). Other games launched on Steam or Epic are much more loosely connected to the platforms distributing it, whereas Roblox games are highly connected to the Roblox platform in general. The barrier of entry to create a Roblox gaming experience is much less difficult than to create a game to release on other distribution platforms, however the games themselves are “Roblox-centric” and have common styling, controls, and gaming mechanisms.
Roblox does not charge for the games themselves, but a user buys virtual items and enhancements through their virtual currency called Robux (See “Revenue Generation”). A user can also be a Roblox Creator who can create virtual items that will appear on their character in all games. They can also create their own Roblox experiences and sell items unique to that game on their own store for Robux. Robux can then be turned into real money (100k Robux -> $350 USD) if the creator wishes to cash out, or they can spend it for themselves within Roblox.
# The User Experience and YouTube Scene
When a Roblox player wants to play a game, they navigate to the Roblox website and login. This allows them to browse a list of games and launch the experience within a downloaded application on their computer called the Roblox Player.
Users on the website can change their avatar and browse the shop for various items such as gear, emotes, characters, and other customizations. Players can connect with their friends or join 1 or more groups of other players to form smaller communities to play together.
Roblox is massive in the YouTube scene. The official Roblox channel has \~2.9 Million Subscribers. Some YouTube creators attempt to create their own content and promote it on their channel to earn Robux, which they can then exchange for real-life cash.
Roblox can appeal to different age groups for different reasons. While younger age-groups are the ones playing the game, older age-groups are finding ways to make tons of money as developers and creators.
*In 2020, Roblox was the second most watched game on YouTube (second only to Minecraft)*
# Conclusion
Being relatively new to trading and this being my first due-diligence for a company, I hesitate to make any sort of predictions personally on where this price will go up or down. My gut tells me the $45 price doesn't feel over or under valued, but I think Roblox has a lot of growth potential over the next year.
**Again, you should NOT take any of this as sound financial advice. I am very new to this.**
I do welcome all criticisms and feedback you have to offer. Tell me what's good, bad and missing from this DD!
| 160 |
GhostfromTexas
| 1,614,999,001 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lysdir/dd_upcoming_roblox_rblx_ipo_next_week_march_10th/
|
lysdir
|
gpvdfbg
|
Thank you for the DD.
I can see you're pretty bullish on RBLX and in some way I am too. But there are a few points I've been thinking about lately that I would like to share and get everyones opinion on as well.
​
The first would be the demographic or age group of users playing Roblox. In their investor day presentation they stated they saw an increase of 107% of DAU's (daily active users) over the age of 13 in 2020. This is great but what I would really like to know if how many of those users are above the age of 18. These are the users that are most likely to own a credit or debit card and be making the micro transactions to generate their revenue.
(you can view the presentation here: [https://www.youtube.com/watch?v=7XisxSUUbe8&ab\_channel=Roblox](https://www.youtube.com/watch?v=7XisxSUUbe8&ab_channel=Roblox) skip to 1:13:41 for the DAU chart)
​
The second would be a build up from the DAU argument. How many of those DAU's are actual users vs bot? Now I don't think this is a huge point to be arguing because as you stated Roblox was the most viewed game on YouTube behind Minecraft so obviously the player base is there, but it's something to think about. In my opinion, more bots in a game makes me less inclined to play it.
​
Finally, the third would be engagement hours. I assume a large percentage of their player base is under the age of 17-18 and are still in K-12 or whatever your country considers pre college. As we know in 2020 everyone was forced to continue education from home. More time in front of the computer = more time on Roblox? How many hours will users be able to commit to once school starts back up?
​
Again, thank you for your DD I really enjoyed it. If anyone agrees or more importantly disagrees with any of the points I made please let me know I'd love to hear your opinion.
| 16 |
NOT-BAD-BUT-NOT-GOOD
| 1,615,008,194 |
DD: Upcoming Roblox $RBLX IPO Next Week (March 10th, 2021)
|
# Roblox (RBLX) IPO for March 10th, 2021
>**Disclaimer:** I am relatively new to trading and did this DD writeup to help me learn. None of the information here should be used as financial advice. I am mainly wanting to test my abilities and gain feedback on my assessment. Feel free to let me know what information you feel is good, bad, or missing! I welcome all criticisms!
# Info
* **Company:** Roblox Corporation - [https://www.roblox.com](https://www.roblox.com/)
* **Founded/Launched:** 2004/2006
* **CEO:** David Baszucki - [https://twitter.com/davidbaszucki](https://twitter.com/davidbaszucki)
* **HQ and Employees:** San Mateo, CA - 830 Employees
* **Monthly Active Users:** 150 Million as of July 2020
* **Age Range:** 50% of the community under 16 years old
# Summary
Roblox (RBLX) is a content creation gaming platform that allows users to develop a wide variety of mini-games and have other users play them through the Roblox Player. Creators can earn a virtual currency called Robux by selling various items to players which can then be converted into actual money at certain milestones.
*As of September 30th, 2020, Roblox had over 18 Million experiences for players.*
Robux can also be purchased directly from Roblox and used for various in-game items such as player customizations and game-specific power ups. Roblox offers a monthly subscription service called “Roblox Premium” where users can obtain exclusive items and a monthly supply of Robux.
*In 2020, Roblox was the 2nd most watched game on YouTube with 75 Billion views*
# Market Data
**IPO** [^(source)](https://www.marketwatch.com/investing/stock/rblx/ipo)
* **SEC Filing:** Feb 11th, 2021
* [https://www.sec.gov/Archives/edgar/data/1315098/000119312521038726/d87104ds1a.htm](https://www.sec.gov/Archives/edgar/data/1315098/000119312521038726/d87104ds1a.htm)
* **Exchange:** NYSE
* **Ticker:** RBLX
* **IPO Date:** March 10th
* **Est. Opening:** $45
* **Shares:** 198.9M
* **Sectors:** Tech
**Financials as of Sept 30th, 2020** ^(Source: Pre-Page 6 of Sec Filing)
* **Revenue:** $614M
* **Bookings:** $1.2B
* **Operating Cash Flow:** $345M
* **Net Loss:** $195M
**Valuation** [^(source)](https://venturebeat.com/2021/01/06/roblox-raises-520-million-at-29-5-billion-valuation-will-go-public-through-direct-listing/)
* **2018:** $2.5 Billion
* **2020:** $4.0 Billion (Series-G funding round $150M raised on Feb. 2020)
* **2021:** $29.5 Billion (Series-H funding round $520M Raised on Jan. 2021)
**Revenue** [^(source)](https://www.businessofapps.com/data/roblox-statistics/)
* **2017:** $45.7M || **2018:** $335M || **2019:** $435M
* **2020:** $613.9M as of Sept 30th, 2020
* **2021:** Projected $1.44 Billion to $1.52 Billion
**Shareholders as of Nov. 2020** [^(source)](https://techcrunch.com/2020/11/19/roblox-files-to-go-public/)
* **Altos Ventures:** 21.3%
* **CEO David Baszucki:** 12%
* **Meritech Capital:** 10.3%
* **Index Ventures:** 9.9%
* **Tiger Global:** 7.3%
* **First Round Capital:** 6.3%
**Growth** ^(Source: Prospectus Summary Pages 2-4 of SEC Filing)
* **Revenue**
* **2018 -> 2019:** 325.0M -> 508.4M (+56%)
* **2019 -> 2020:** 360.8M -> 613.9M (+70%) ^((9 Months ended Sept 30th for both years))
* **Bookings**
* **2018 -> 2019:** 499.0M -> 694.3M (+39%)
* **2019 -> 2020:** 458.0M -> 1.240B (+171%) ^((9 Months ended Sept 30th for both years))
* **Daily Active Users**
* **2018 -> 2019:** 12.0M to 17.6M (+47%)
* **2019 -> 2020:** 17.1M to 31.1M (+81%) ^((9 Months ended Sept 30th for both years))
* **Engagement Hours**
* **2018 -> 2019:** 9.4B to 13.7B (+45%)
* **2019 -> 2020:** 10.0B to 22.2B (+123%) ^((9 Months ended Sept 30th for both years))
**Risk Factors** ^(Source: Prospectus Summary Pages 9-10 of SEC Filing)
* Recent rapid growth may not be indicative of future growth.
* History of Net Losses that may not be able to achieve profitability in the future.
* Hard to predict financial situations quarter to quarter. Effected by seasonal demands
* Recent setbacks for business operations due to COVID-19 Outbreak
* Relies heavily on Mobile devices, hardware and networks that they do not control, and changes could affect user experience and retention
* Identified material weakness in internal control over financial reporting which resulted in restatement of their financial states for 2018 and 2019 and first 9 months in 2020.
* The public trading of the Class A common stock may be volatile and could, upon listing on the NYSE, decline significantly and rapidly.
* As of Jan. 2015, the executive officers, directors and holders of 5% or more of the Class A stock collectively own \~65.5% of the outstanding shares and 100% of the outstanding Class B common to maintain substantial control.
# Revenue Generation
Roblox generates revenue in several ways. Players purchase Robux directly for prices ranging from $4.99 to $99.99. Players can spend Robux on game-specific purchases that goes to the Creators with a 30% fee taken out.
Creators can exchange Robux for USD at a current rate $350 per 100,000 Robux as of March 4, 2020. To purchase 100,000 Robux would require 10 purchases of the $99.99 package (10k Robux each) for a total of $999.90.
Roblox also offers three subscription tiers ranging from $4.99 to $19.99 a month, which earns a player Robux and Exclusive store items.
Merchandise plays a role in revenue generation as well. Roblox offers clothing, figurines and gift cards which can be purchased online and in person from places like Amazon, Walmart, Target, and other retail locations.
# Growth Potential and Catalyst
The current outlook for Roblox to grow is promising. There are active investments being made in expanding the age range, international reach, monetization, and technical capabilities of the platform. By continuing to employ modern technology to improve the platform, higher quality experiences and content that appeals to older age demographics can be created.
Current international markets for Roblox include US, Canada, and the United Kingdom. Roblox is actively investing in technology that they hope will enhance their growth around the world. For example, they hope to use automated translation and built-in regional compliance tools to help scale into other global markets.
Monetization is another key component to Roblox growing. Recently Roblox Premium which offers a monthly subscription service to its users was added. Roblox actively works with its creator and developer community to help bring them improve their monetization, which in turn increases Roblox’s monetization. Roblox expects to work with leading brands to build unique marketing opportunities to the platform.
# Competitors and Differences
One of the things to keep in mind about Roblox itself is not a game, but a gaming platform and ecosystem of multiple gaming experiences. Over 18 million games can be launched from their website and played through a downloaded app on the user’s computer. Each game can be completely unique from every other game.
Roblox as a platform would more closely related to that of Steam (by Valve) or Epic Games Launcher (by Epic) or Origin (by EA). However, instead of purchasing games through this, a user simply launches whichever one of these free experiences they want at any time. There is no purchasing of the game like there is on the other mentioned platforms.
Roblox’s main difference is they use the underlying tools to create Roblox specific games utilizing their Software Development Kit (SDK). Other games launched on Steam or Epic are much more loosely connected to the platforms distributing it, whereas Roblox games are highly connected to the Roblox platform in general. The barrier of entry to create a Roblox gaming experience is much less difficult than to create a game to release on other distribution platforms, however the games themselves are “Roblox-centric” and have common styling, controls, and gaming mechanisms.
Roblox does not charge for the games themselves, but a user buys virtual items and enhancements through their virtual currency called Robux (See “Revenue Generation”). A user can also be a Roblox Creator who can create virtual items that will appear on their character in all games. They can also create their own Roblox experiences and sell items unique to that game on their own store for Robux. Robux can then be turned into real money (100k Robux -> $350 USD) if the creator wishes to cash out, or they can spend it for themselves within Roblox.
# The User Experience and YouTube Scene
When a Roblox player wants to play a game, they navigate to the Roblox website and login. This allows them to browse a list of games and launch the experience within a downloaded application on their computer called the Roblox Player.
Users on the website can change their avatar and browse the shop for various items such as gear, emotes, characters, and other customizations. Players can connect with their friends or join 1 or more groups of other players to form smaller communities to play together.
Roblox is massive in the YouTube scene. The official Roblox channel has \~2.9 Million Subscribers. Some YouTube creators attempt to create their own content and promote it on their channel to earn Robux, which they can then exchange for real-life cash.
Roblox can appeal to different age groups for different reasons. While younger age-groups are the ones playing the game, older age-groups are finding ways to make tons of money as developers and creators.
*In 2020, Roblox was the second most watched game on YouTube (second only to Minecraft)*
# Conclusion
Being relatively new to trading and this being my first due-diligence for a company, I hesitate to make any sort of predictions personally on where this price will go up or down. My gut tells me the $45 price doesn't feel over or under valued, but I think Roblox has a lot of growth potential over the next year.
**Again, you should NOT take any of this as sound financial advice. I am very new to this.**
I do welcome all criticisms and feedback you have to offer. Tell me what's good, bad and missing from this DD!
| 160 |
GhostfromTexas
| 1,614,999,001 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lysdir/dd_upcoming_roblox_rblx_ipo_next_week_march_10th/
|
lysdir
|
gpv9w0b
|
What supports the 7x + jump in company valuation from the previous year?
| 13 |
106milez2chicago
| 1,615,006,526 |
DD: Upcoming Roblox $RBLX IPO Next Week (March 10th, 2021)
|
# Roblox (RBLX) IPO for March 10th, 2021
>**Disclaimer:** I am relatively new to trading and did this DD writeup to help me learn. None of the information here should be used as financial advice. I am mainly wanting to test my abilities and gain feedback on my assessment. Feel free to let me know what information you feel is good, bad, or missing! I welcome all criticisms!
# Info
* **Company:** Roblox Corporation - [https://www.roblox.com](https://www.roblox.com/)
* **Founded/Launched:** 2004/2006
* **CEO:** David Baszucki - [https://twitter.com/davidbaszucki](https://twitter.com/davidbaszucki)
* **HQ and Employees:** San Mateo, CA - 830 Employees
* **Monthly Active Users:** 150 Million as of July 2020
* **Age Range:** 50% of the community under 16 years old
# Summary
Roblox (RBLX) is a content creation gaming platform that allows users to develop a wide variety of mini-games and have other users play them through the Roblox Player. Creators can earn a virtual currency called Robux by selling various items to players which can then be converted into actual money at certain milestones.
*As of September 30th, 2020, Roblox had over 18 Million experiences for players.*
Robux can also be purchased directly from Roblox and used for various in-game items such as player customizations and game-specific power ups. Roblox offers a monthly subscription service called “Roblox Premium” where users can obtain exclusive items and a monthly supply of Robux.
*In 2020, Roblox was the 2nd most watched game on YouTube with 75 Billion views*
# Market Data
**IPO** [^(source)](https://www.marketwatch.com/investing/stock/rblx/ipo)
* **SEC Filing:** Feb 11th, 2021
* [https://www.sec.gov/Archives/edgar/data/1315098/000119312521038726/d87104ds1a.htm](https://www.sec.gov/Archives/edgar/data/1315098/000119312521038726/d87104ds1a.htm)
* **Exchange:** NYSE
* **Ticker:** RBLX
* **IPO Date:** March 10th
* **Est. Opening:** $45
* **Shares:** 198.9M
* **Sectors:** Tech
**Financials as of Sept 30th, 2020** ^(Source: Pre-Page 6 of Sec Filing)
* **Revenue:** $614M
* **Bookings:** $1.2B
* **Operating Cash Flow:** $345M
* **Net Loss:** $195M
**Valuation** [^(source)](https://venturebeat.com/2021/01/06/roblox-raises-520-million-at-29-5-billion-valuation-will-go-public-through-direct-listing/)
* **2018:** $2.5 Billion
* **2020:** $4.0 Billion (Series-G funding round $150M raised on Feb. 2020)
* **2021:** $29.5 Billion (Series-H funding round $520M Raised on Jan. 2021)
**Revenue** [^(source)](https://www.businessofapps.com/data/roblox-statistics/)
* **2017:** $45.7M || **2018:** $335M || **2019:** $435M
* **2020:** $613.9M as of Sept 30th, 2020
* **2021:** Projected $1.44 Billion to $1.52 Billion
**Shareholders as of Nov. 2020** [^(source)](https://techcrunch.com/2020/11/19/roblox-files-to-go-public/)
* **Altos Ventures:** 21.3%
* **CEO David Baszucki:** 12%
* **Meritech Capital:** 10.3%
* **Index Ventures:** 9.9%
* **Tiger Global:** 7.3%
* **First Round Capital:** 6.3%
**Growth** ^(Source: Prospectus Summary Pages 2-4 of SEC Filing)
* **Revenue**
* **2018 -> 2019:** 325.0M -> 508.4M (+56%)
* **2019 -> 2020:** 360.8M -> 613.9M (+70%) ^((9 Months ended Sept 30th for both years))
* **Bookings**
* **2018 -> 2019:** 499.0M -> 694.3M (+39%)
* **2019 -> 2020:** 458.0M -> 1.240B (+171%) ^((9 Months ended Sept 30th for both years))
* **Daily Active Users**
* **2018 -> 2019:** 12.0M to 17.6M (+47%)
* **2019 -> 2020:** 17.1M to 31.1M (+81%) ^((9 Months ended Sept 30th for both years))
* **Engagement Hours**
* **2018 -> 2019:** 9.4B to 13.7B (+45%)
* **2019 -> 2020:** 10.0B to 22.2B (+123%) ^((9 Months ended Sept 30th for both years))
**Risk Factors** ^(Source: Prospectus Summary Pages 9-10 of SEC Filing)
* Recent rapid growth may not be indicative of future growth.
* History of Net Losses that may not be able to achieve profitability in the future.
* Hard to predict financial situations quarter to quarter. Effected by seasonal demands
* Recent setbacks for business operations due to COVID-19 Outbreak
* Relies heavily on Mobile devices, hardware and networks that they do not control, and changes could affect user experience and retention
* Identified material weakness in internal control over financial reporting which resulted in restatement of their financial states for 2018 and 2019 and first 9 months in 2020.
* The public trading of the Class A common stock may be volatile and could, upon listing on the NYSE, decline significantly and rapidly.
* As of Jan. 2015, the executive officers, directors and holders of 5% or more of the Class A stock collectively own \~65.5% of the outstanding shares and 100% of the outstanding Class B common to maintain substantial control.
# Revenue Generation
Roblox generates revenue in several ways. Players purchase Robux directly for prices ranging from $4.99 to $99.99. Players can spend Robux on game-specific purchases that goes to the Creators with a 30% fee taken out.
Creators can exchange Robux for USD at a current rate $350 per 100,000 Robux as of March 4, 2020. To purchase 100,000 Robux would require 10 purchases of the $99.99 package (10k Robux each) for a total of $999.90.
Roblox also offers three subscription tiers ranging from $4.99 to $19.99 a month, which earns a player Robux and Exclusive store items.
Merchandise plays a role in revenue generation as well. Roblox offers clothing, figurines and gift cards which can be purchased online and in person from places like Amazon, Walmart, Target, and other retail locations.
# Growth Potential and Catalyst
The current outlook for Roblox to grow is promising. There are active investments being made in expanding the age range, international reach, monetization, and technical capabilities of the platform. By continuing to employ modern technology to improve the platform, higher quality experiences and content that appeals to older age demographics can be created.
Current international markets for Roblox include US, Canada, and the United Kingdom. Roblox is actively investing in technology that they hope will enhance their growth around the world. For example, they hope to use automated translation and built-in regional compliance tools to help scale into other global markets.
Monetization is another key component to Roblox growing. Recently Roblox Premium which offers a monthly subscription service to its users was added. Roblox actively works with its creator and developer community to help bring them improve their monetization, which in turn increases Roblox’s monetization. Roblox expects to work with leading brands to build unique marketing opportunities to the platform.
# Competitors and Differences
One of the things to keep in mind about Roblox itself is not a game, but a gaming platform and ecosystem of multiple gaming experiences. Over 18 million games can be launched from their website and played through a downloaded app on the user’s computer. Each game can be completely unique from every other game.
Roblox as a platform would more closely related to that of Steam (by Valve) or Epic Games Launcher (by Epic) or Origin (by EA). However, instead of purchasing games through this, a user simply launches whichever one of these free experiences they want at any time. There is no purchasing of the game like there is on the other mentioned platforms.
Roblox’s main difference is they use the underlying tools to create Roblox specific games utilizing their Software Development Kit (SDK). Other games launched on Steam or Epic are much more loosely connected to the platforms distributing it, whereas Roblox games are highly connected to the Roblox platform in general. The barrier of entry to create a Roblox gaming experience is much less difficult than to create a game to release on other distribution platforms, however the games themselves are “Roblox-centric” and have common styling, controls, and gaming mechanisms.
Roblox does not charge for the games themselves, but a user buys virtual items and enhancements through their virtual currency called Robux (See “Revenue Generation”). A user can also be a Roblox Creator who can create virtual items that will appear on their character in all games. They can also create their own Roblox experiences and sell items unique to that game on their own store for Robux. Robux can then be turned into real money (100k Robux -> $350 USD) if the creator wishes to cash out, or they can spend it for themselves within Roblox.
# The User Experience and YouTube Scene
When a Roblox player wants to play a game, they navigate to the Roblox website and login. This allows them to browse a list of games and launch the experience within a downloaded application on their computer called the Roblox Player.
Users on the website can change their avatar and browse the shop for various items such as gear, emotes, characters, and other customizations. Players can connect with their friends or join 1 or more groups of other players to form smaller communities to play together.
Roblox is massive in the YouTube scene. The official Roblox channel has \~2.9 Million Subscribers. Some YouTube creators attempt to create their own content and promote it on their channel to earn Robux, which they can then exchange for real-life cash.
Roblox can appeal to different age groups for different reasons. While younger age-groups are the ones playing the game, older age-groups are finding ways to make tons of money as developers and creators.
*In 2020, Roblox was the second most watched game on YouTube (second only to Minecraft)*
# Conclusion
Being relatively new to trading and this being my first due-diligence for a company, I hesitate to make any sort of predictions personally on where this price will go up or down. My gut tells me the $45 price doesn't feel over or under valued, but I think Roblox has a lot of growth potential over the next year.
**Again, you should NOT take any of this as sound financial advice. I am very new to this.**
I do welcome all criticisms and feedback you have to offer. Tell me what's good, bad and missing from this DD!
| 160 |
GhostfromTexas
| 1,614,999,001 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lysdir/dd_upcoming_roblox_rblx_ipo_next_week_march_10th/
|
lysdir
|
gpuuvl4
|
Nice write up. Will be interesting to see if this is one of those IPO’s that spike 50-75% on the first day of trading to some bloated valuation. I really want to invest in this but not willing to pay a 50x revenue multiple.
| 19 |
jejakqmqm
| 1,615,000,331 |
DD: Upcoming Roblox $RBLX IPO Next Week (March 10th, 2021)
|
# Roblox (RBLX) IPO for March 10th, 2021
>**Disclaimer:** I am relatively new to trading and did this DD writeup to help me learn. None of the information here should be used as financial advice. I am mainly wanting to test my abilities and gain feedback on my assessment. Feel free to let me know what information you feel is good, bad, or missing! I welcome all criticisms!
# Info
* **Company:** Roblox Corporation - [https://www.roblox.com](https://www.roblox.com/)
* **Founded/Launched:** 2004/2006
* **CEO:** David Baszucki - [https://twitter.com/davidbaszucki](https://twitter.com/davidbaszucki)
* **HQ and Employees:** San Mateo, CA - 830 Employees
* **Monthly Active Users:** 150 Million as of July 2020
* **Age Range:** 50% of the community under 16 years old
# Summary
Roblox (RBLX) is a content creation gaming platform that allows users to develop a wide variety of mini-games and have other users play them through the Roblox Player. Creators can earn a virtual currency called Robux by selling various items to players which can then be converted into actual money at certain milestones.
*As of September 30th, 2020, Roblox had over 18 Million experiences for players.*
Robux can also be purchased directly from Roblox and used for various in-game items such as player customizations and game-specific power ups. Roblox offers a monthly subscription service called “Roblox Premium” where users can obtain exclusive items and a monthly supply of Robux.
*In 2020, Roblox was the 2nd most watched game on YouTube with 75 Billion views*
# Market Data
**IPO** [^(source)](https://www.marketwatch.com/investing/stock/rblx/ipo)
* **SEC Filing:** Feb 11th, 2021
* [https://www.sec.gov/Archives/edgar/data/1315098/000119312521038726/d87104ds1a.htm](https://www.sec.gov/Archives/edgar/data/1315098/000119312521038726/d87104ds1a.htm)
* **Exchange:** NYSE
* **Ticker:** RBLX
* **IPO Date:** March 10th
* **Est. Opening:** $45
* **Shares:** 198.9M
* **Sectors:** Tech
**Financials as of Sept 30th, 2020** ^(Source: Pre-Page 6 of Sec Filing)
* **Revenue:** $614M
* **Bookings:** $1.2B
* **Operating Cash Flow:** $345M
* **Net Loss:** $195M
**Valuation** [^(source)](https://venturebeat.com/2021/01/06/roblox-raises-520-million-at-29-5-billion-valuation-will-go-public-through-direct-listing/)
* **2018:** $2.5 Billion
* **2020:** $4.0 Billion (Series-G funding round $150M raised on Feb. 2020)
* **2021:** $29.5 Billion (Series-H funding round $520M Raised on Jan. 2021)
**Revenue** [^(source)](https://www.businessofapps.com/data/roblox-statistics/)
* **2017:** $45.7M || **2018:** $335M || **2019:** $435M
* **2020:** $613.9M as of Sept 30th, 2020
* **2021:** Projected $1.44 Billion to $1.52 Billion
**Shareholders as of Nov. 2020** [^(source)](https://techcrunch.com/2020/11/19/roblox-files-to-go-public/)
* **Altos Ventures:** 21.3%
* **CEO David Baszucki:** 12%
* **Meritech Capital:** 10.3%
* **Index Ventures:** 9.9%
* **Tiger Global:** 7.3%
* **First Round Capital:** 6.3%
**Growth** ^(Source: Prospectus Summary Pages 2-4 of SEC Filing)
* **Revenue**
* **2018 -> 2019:** 325.0M -> 508.4M (+56%)
* **2019 -> 2020:** 360.8M -> 613.9M (+70%) ^((9 Months ended Sept 30th for both years))
* **Bookings**
* **2018 -> 2019:** 499.0M -> 694.3M (+39%)
* **2019 -> 2020:** 458.0M -> 1.240B (+171%) ^((9 Months ended Sept 30th for both years))
* **Daily Active Users**
* **2018 -> 2019:** 12.0M to 17.6M (+47%)
* **2019 -> 2020:** 17.1M to 31.1M (+81%) ^((9 Months ended Sept 30th for both years))
* **Engagement Hours**
* **2018 -> 2019:** 9.4B to 13.7B (+45%)
* **2019 -> 2020:** 10.0B to 22.2B (+123%) ^((9 Months ended Sept 30th for both years))
**Risk Factors** ^(Source: Prospectus Summary Pages 9-10 of SEC Filing)
* Recent rapid growth may not be indicative of future growth.
* History of Net Losses that may not be able to achieve profitability in the future.
* Hard to predict financial situations quarter to quarter. Effected by seasonal demands
* Recent setbacks for business operations due to COVID-19 Outbreak
* Relies heavily on Mobile devices, hardware and networks that they do not control, and changes could affect user experience and retention
* Identified material weakness in internal control over financial reporting which resulted in restatement of their financial states for 2018 and 2019 and first 9 months in 2020.
* The public trading of the Class A common stock may be volatile and could, upon listing on the NYSE, decline significantly and rapidly.
* As of Jan. 2015, the executive officers, directors and holders of 5% or more of the Class A stock collectively own \~65.5% of the outstanding shares and 100% of the outstanding Class B common to maintain substantial control.
# Revenue Generation
Roblox generates revenue in several ways. Players purchase Robux directly for prices ranging from $4.99 to $99.99. Players can spend Robux on game-specific purchases that goes to the Creators with a 30% fee taken out.
Creators can exchange Robux for USD at a current rate $350 per 100,000 Robux as of March 4, 2020. To purchase 100,000 Robux would require 10 purchases of the $99.99 package (10k Robux each) for a total of $999.90.
Roblox also offers three subscription tiers ranging from $4.99 to $19.99 a month, which earns a player Robux and Exclusive store items.
Merchandise plays a role in revenue generation as well. Roblox offers clothing, figurines and gift cards which can be purchased online and in person from places like Amazon, Walmart, Target, and other retail locations.
# Growth Potential and Catalyst
The current outlook for Roblox to grow is promising. There are active investments being made in expanding the age range, international reach, monetization, and technical capabilities of the platform. By continuing to employ modern technology to improve the platform, higher quality experiences and content that appeals to older age demographics can be created.
Current international markets for Roblox include US, Canada, and the United Kingdom. Roblox is actively investing in technology that they hope will enhance their growth around the world. For example, they hope to use automated translation and built-in regional compliance tools to help scale into other global markets.
Monetization is another key component to Roblox growing. Recently Roblox Premium which offers a monthly subscription service to its users was added. Roblox actively works with its creator and developer community to help bring them improve their monetization, which in turn increases Roblox’s monetization. Roblox expects to work with leading brands to build unique marketing opportunities to the platform.
# Competitors and Differences
One of the things to keep in mind about Roblox itself is not a game, but a gaming platform and ecosystem of multiple gaming experiences. Over 18 million games can be launched from their website and played through a downloaded app on the user’s computer. Each game can be completely unique from every other game.
Roblox as a platform would more closely related to that of Steam (by Valve) or Epic Games Launcher (by Epic) or Origin (by EA). However, instead of purchasing games through this, a user simply launches whichever one of these free experiences they want at any time. There is no purchasing of the game like there is on the other mentioned platforms.
Roblox’s main difference is they use the underlying tools to create Roblox specific games utilizing their Software Development Kit (SDK). Other games launched on Steam or Epic are much more loosely connected to the platforms distributing it, whereas Roblox games are highly connected to the Roblox platform in general. The barrier of entry to create a Roblox gaming experience is much less difficult than to create a game to release on other distribution platforms, however the games themselves are “Roblox-centric” and have common styling, controls, and gaming mechanisms.
Roblox does not charge for the games themselves, but a user buys virtual items and enhancements through their virtual currency called Robux (See “Revenue Generation”). A user can also be a Roblox Creator who can create virtual items that will appear on their character in all games. They can also create their own Roblox experiences and sell items unique to that game on their own store for Robux. Robux can then be turned into real money (100k Robux -> $350 USD) if the creator wishes to cash out, or they can spend it for themselves within Roblox.
# The User Experience and YouTube Scene
When a Roblox player wants to play a game, they navigate to the Roblox website and login. This allows them to browse a list of games and launch the experience within a downloaded application on their computer called the Roblox Player.
Users on the website can change their avatar and browse the shop for various items such as gear, emotes, characters, and other customizations. Players can connect with their friends or join 1 or more groups of other players to form smaller communities to play together.
Roblox is massive in the YouTube scene. The official Roblox channel has \~2.9 Million Subscribers. Some YouTube creators attempt to create their own content and promote it on their channel to earn Robux, which they can then exchange for real-life cash.
Roblox can appeal to different age groups for different reasons. While younger age-groups are the ones playing the game, older age-groups are finding ways to make tons of money as developers and creators.
*In 2020, Roblox was the second most watched game on YouTube (second only to Minecraft)*
# Conclusion
Being relatively new to trading and this being my first due-diligence for a company, I hesitate to make any sort of predictions personally on where this price will go up or down. My gut tells me the $45 price doesn't feel over or under valued, but I think Roblox has a lot of growth potential over the next year.
**Again, you should NOT take any of this as sound financial advice. I am very new to this.**
I do welcome all criticisms and feedback you have to offer. Tell me what's good, bad and missing from this DD!
| 160 |
GhostfromTexas
| 1,614,999,001 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lysdir/dd_upcoming_roblox_rblx_ipo_next_week_march_10th/
|
lysdir
|
gpuvs0o
|
It’s still so funny to me that a company with projected 1bn+ rev is valued at 20bn+ when CRSR has a 3bn market cap and 2bn in projected revenue.
| 32 |
tothefuckingmoonn
| 1,615,000,667 |
DD: Upcoming Roblox $RBLX IPO Next Week (March 10th, 2021)
|
# Roblox (RBLX) IPO for March 10th, 2021
>**Disclaimer:** I am relatively new to trading and did this DD writeup to help me learn. None of the information here should be used as financial advice. I am mainly wanting to test my abilities and gain feedback on my assessment. Feel free to let me know what information you feel is good, bad, or missing! I welcome all criticisms!
# Info
* **Company:** Roblox Corporation - [https://www.roblox.com](https://www.roblox.com/)
* **Founded/Launched:** 2004/2006
* **CEO:** David Baszucki - [https://twitter.com/davidbaszucki](https://twitter.com/davidbaszucki)
* **HQ and Employees:** San Mateo, CA - 830 Employees
* **Monthly Active Users:** 150 Million as of July 2020
* **Age Range:** 50% of the community under 16 years old
# Summary
Roblox (RBLX) is a content creation gaming platform that allows users to develop a wide variety of mini-games and have other users play them through the Roblox Player. Creators can earn a virtual currency called Robux by selling various items to players which can then be converted into actual money at certain milestones.
*As of September 30th, 2020, Roblox had over 18 Million experiences for players.*
Robux can also be purchased directly from Roblox and used for various in-game items such as player customizations and game-specific power ups. Roblox offers a monthly subscription service called “Roblox Premium” where users can obtain exclusive items and a monthly supply of Robux.
*In 2020, Roblox was the 2nd most watched game on YouTube with 75 Billion views*
# Market Data
**IPO** [^(source)](https://www.marketwatch.com/investing/stock/rblx/ipo)
* **SEC Filing:** Feb 11th, 2021
* [https://www.sec.gov/Archives/edgar/data/1315098/000119312521038726/d87104ds1a.htm](https://www.sec.gov/Archives/edgar/data/1315098/000119312521038726/d87104ds1a.htm)
* **Exchange:** NYSE
* **Ticker:** RBLX
* **IPO Date:** March 10th
* **Est. Opening:** $45
* **Shares:** 198.9M
* **Sectors:** Tech
**Financials as of Sept 30th, 2020** ^(Source: Pre-Page 6 of Sec Filing)
* **Revenue:** $614M
* **Bookings:** $1.2B
* **Operating Cash Flow:** $345M
* **Net Loss:** $195M
**Valuation** [^(source)](https://venturebeat.com/2021/01/06/roblox-raises-520-million-at-29-5-billion-valuation-will-go-public-through-direct-listing/)
* **2018:** $2.5 Billion
* **2020:** $4.0 Billion (Series-G funding round $150M raised on Feb. 2020)
* **2021:** $29.5 Billion (Series-H funding round $520M Raised on Jan. 2021)
**Revenue** [^(source)](https://www.businessofapps.com/data/roblox-statistics/)
* **2017:** $45.7M || **2018:** $335M || **2019:** $435M
* **2020:** $613.9M as of Sept 30th, 2020
* **2021:** Projected $1.44 Billion to $1.52 Billion
**Shareholders as of Nov. 2020** [^(source)](https://techcrunch.com/2020/11/19/roblox-files-to-go-public/)
* **Altos Ventures:** 21.3%
* **CEO David Baszucki:** 12%
* **Meritech Capital:** 10.3%
* **Index Ventures:** 9.9%
* **Tiger Global:** 7.3%
* **First Round Capital:** 6.3%
**Growth** ^(Source: Prospectus Summary Pages 2-4 of SEC Filing)
* **Revenue**
* **2018 -> 2019:** 325.0M -> 508.4M (+56%)
* **2019 -> 2020:** 360.8M -> 613.9M (+70%) ^((9 Months ended Sept 30th for both years))
* **Bookings**
* **2018 -> 2019:** 499.0M -> 694.3M (+39%)
* **2019 -> 2020:** 458.0M -> 1.240B (+171%) ^((9 Months ended Sept 30th for both years))
* **Daily Active Users**
* **2018 -> 2019:** 12.0M to 17.6M (+47%)
* **2019 -> 2020:** 17.1M to 31.1M (+81%) ^((9 Months ended Sept 30th for both years))
* **Engagement Hours**
* **2018 -> 2019:** 9.4B to 13.7B (+45%)
* **2019 -> 2020:** 10.0B to 22.2B (+123%) ^((9 Months ended Sept 30th for both years))
**Risk Factors** ^(Source: Prospectus Summary Pages 9-10 of SEC Filing)
* Recent rapid growth may not be indicative of future growth.
* History of Net Losses that may not be able to achieve profitability in the future.
* Hard to predict financial situations quarter to quarter. Effected by seasonal demands
* Recent setbacks for business operations due to COVID-19 Outbreak
* Relies heavily on Mobile devices, hardware and networks that they do not control, and changes could affect user experience and retention
* Identified material weakness in internal control over financial reporting which resulted in restatement of their financial states for 2018 and 2019 and first 9 months in 2020.
* The public trading of the Class A common stock may be volatile and could, upon listing on the NYSE, decline significantly and rapidly.
* As of Jan. 2015, the executive officers, directors and holders of 5% or more of the Class A stock collectively own \~65.5% of the outstanding shares and 100% of the outstanding Class B common to maintain substantial control.
# Revenue Generation
Roblox generates revenue in several ways. Players purchase Robux directly for prices ranging from $4.99 to $99.99. Players can spend Robux on game-specific purchases that goes to the Creators with a 30% fee taken out.
Creators can exchange Robux for USD at a current rate $350 per 100,000 Robux as of March 4, 2020. To purchase 100,000 Robux would require 10 purchases of the $99.99 package (10k Robux each) for a total of $999.90.
Roblox also offers three subscription tiers ranging from $4.99 to $19.99 a month, which earns a player Robux and Exclusive store items.
Merchandise plays a role in revenue generation as well. Roblox offers clothing, figurines and gift cards which can be purchased online and in person from places like Amazon, Walmart, Target, and other retail locations.
# Growth Potential and Catalyst
The current outlook for Roblox to grow is promising. There are active investments being made in expanding the age range, international reach, monetization, and technical capabilities of the platform. By continuing to employ modern technology to improve the platform, higher quality experiences and content that appeals to older age demographics can be created.
Current international markets for Roblox include US, Canada, and the United Kingdom. Roblox is actively investing in technology that they hope will enhance their growth around the world. For example, they hope to use automated translation and built-in regional compliance tools to help scale into other global markets.
Monetization is another key component to Roblox growing. Recently Roblox Premium which offers a monthly subscription service to its users was added. Roblox actively works with its creator and developer community to help bring them improve their monetization, which in turn increases Roblox’s monetization. Roblox expects to work with leading brands to build unique marketing opportunities to the platform.
# Competitors and Differences
One of the things to keep in mind about Roblox itself is not a game, but a gaming platform and ecosystem of multiple gaming experiences. Over 18 million games can be launched from their website and played through a downloaded app on the user’s computer. Each game can be completely unique from every other game.
Roblox as a platform would more closely related to that of Steam (by Valve) or Epic Games Launcher (by Epic) or Origin (by EA). However, instead of purchasing games through this, a user simply launches whichever one of these free experiences they want at any time. There is no purchasing of the game like there is on the other mentioned platforms.
Roblox’s main difference is they use the underlying tools to create Roblox specific games utilizing their Software Development Kit (SDK). Other games launched on Steam or Epic are much more loosely connected to the platforms distributing it, whereas Roblox games are highly connected to the Roblox platform in general. The barrier of entry to create a Roblox gaming experience is much less difficult than to create a game to release on other distribution platforms, however the games themselves are “Roblox-centric” and have common styling, controls, and gaming mechanisms.
Roblox does not charge for the games themselves, but a user buys virtual items and enhancements through their virtual currency called Robux (See “Revenue Generation”). A user can also be a Roblox Creator who can create virtual items that will appear on their character in all games. They can also create their own Roblox experiences and sell items unique to that game on their own store for Robux. Robux can then be turned into real money (100k Robux -> $350 USD) if the creator wishes to cash out, or they can spend it for themselves within Roblox.
# The User Experience and YouTube Scene
When a Roblox player wants to play a game, they navigate to the Roblox website and login. This allows them to browse a list of games and launch the experience within a downloaded application on their computer called the Roblox Player.
Users on the website can change their avatar and browse the shop for various items such as gear, emotes, characters, and other customizations. Players can connect with their friends or join 1 or more groups of other players to form smaller communities to play together.
Roblox is massive in the YouTube scene. The official Roblox channel has \~2.9 Million Subscribers. Some YouTube creators attempt to create their own content and promote it on their channel to earn Robux, which they can then exchange for real-life cash.
Roblox can appeal to different age groups for different reasons. While younger age-groups are the ones playing the game, older age-groups are finding ways to make tons of money as developers and creators.
*In 2020, Roblox was the second most watched game on YouTube (second only to Minecraft)*
# Conclusion
Being relatively new to trading and this being my first due-diligence for a company, I hesitate to make any sort of predictions personally on where this price will go up or down. My gut tells me the $45 price doesn't feel over or under valued, but I think Roblox has a lot of growth potential over the next year.
**Again, you should NOT take any of this as sound financial advice. I am very new to this.**
I do welcome all criticisms and feedback you have to offer. Tell me what's good, bad and missing from this DD!
| 160 |
GhostfromTexas
| 1,614,999,001 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lysdir/dd_upcoming_roblox_rblx_ipo_next_week_march_10th/
|
lysdir
|
gpz6acn
|
History has been showing that it's best to avoid investing in IPOs because they tend to drop sharply after the hype quickly dies down within the first few days.
Better to wait until AFTER the lockup period which tends to see another sharp drop in share price as company shareholders sell off their shares
| 6 |
Trzebs
| 1,615,047,899 |
DD: Upcoming Roblox $RBLX IPO Next Week (March 10th, 2021)
|
# Roblox (RBLX) IPO for March 10th, 2021
>**Disclaimer:** I am relatively new to trading and did this DD writeup to help me learn. None of the information here should be used as financial advice. I am mainly wanting to test my abilities and gain feedback on my assessment. Feel free to let me know what information you feel is good, bad, or missing! I welcome all criticisms!
# Info
* **Company:** Roblox Corporation - [https://www.roblox.com](https://www.roblox.com/)
* **Founded/Launched:** 2004/2006
* **CEO:** David Baszucki - [https://twitter.com/davidbaszucki](https://twitter.com/davidbaszucki)
* **HQ and Employees:** San Mateo, CA - 830 Employees
* **Monthly Active Users:** 150 Million as of July 2020
* **Age Range:** 50% of the community under 16 years old
# Summary
Roblox (RBLX) is a content creation gaming platform that allows users to develop a wide variety of mini-games and have other users play them through the Roblox Player. Creators can earn a virtual currency called Robux by selling various items to players which can then be converted into actual money at certain milestones.
*As of September 30th, 2020, Roblox had over 18 Million experiences for players.*
Robux can also be purchased directly from Roblox and used for various in-game items such as player customizations and game-specific power ups. Roblox offers a monthly subscription service called “Roblox Premium” where users can obtain exclusive items and a monthly supply of Robux.
*In 2020, Roblox was the 2nd most watched game on YouTube with 75 Billion views*
# Market Data
**IPO** [^(source)](https://www.marketwatch.com/investing/stock/rblx/ipo)
* **SEC Filing:** Feb 11th, 2021
* [https://www.sec.gov/Archives/edgar/data/1315098/000119312521038726/d87104ds1a.htm](https://www.sec.gov/Archives/edgar/data/1315098/000119312521038726/d87104ds1a.htm)
* **Exchange:** NYSE
* **Ticker:** RBLX
* **IPO Date:** March 10th
* **Est. Opening:** $45
* **Shares:** 198.9M
* **Sectors:** Tech
**Financials as of Sept 30th, 2020** ^(Source: Pre-Page 6 of Sec Filing)
* **Revenue:** $614M
* **Bookings:** $1.2B
* **Operating Cash Flow:** $345M
* **Net Loss:** $195M
**Valuation** [^(source)](https://venturebeat.com/2021/01/06/roblox-raises-520-million-at-29-5-billion-valuation-will-go-public-through-direct-listing/)
* **2018:** $2.5 Billion
* **2020:** $4.0 Billion (Series-G funding round $150M raised on Feb. 2020)
* **2021:** $29.5 Billion (Series-H funding round $520M Raised on Jan. 2021)
**Revenue** [^(source)](https://www.businessofapps.com/data/roblox-statistics/)
* **2017:** $45.7M || **2018:** $335M || **2019:** $435M
* **2020:** $613.9M as of Sept 30th, 2020
* **2021:** Projected $1.44 Billion to $1.52 Billion
**Shareholders as of Nov. 2020** [^(source)](https://techcrunch.com/2020/11/19/roblox-files-to-go-public/)
* **Altos Ventures:** 21.3%
* **CEO David Baszucki:** 12%
* **Meritech Capital:** 10.3%
* **Index Ventures:** 9.9%
* **Tiger Global:** 7.3%
* **First Round Capital:** 6.3%
**Growth** ^(Source: Prospectus Summary Pages 2-4 of SEC Filing)
* **Revenue**
* **2018 -> 2019:** 325.0M -> 508.4M (+56%)
* **2019 -> 2020:** 360.8M -> 613.9M (+70%) ^((9 Months ended Sept 30th for both years))
* **Bookings**
* **2018 -> 2019:** 499.0M -> 694.3M (+39%)
* **2019 -> 2020:** 458.0M -> 1.240B (+171%) ^((9 Months ended Sept 30th for both years))
* **Daily Active Users**
* **2018 -> 2019:** 12.0M to 17.6M (+47%)
* **2019 -> 2020:** 17.1M to 31.1M (+81%) ^((9 Months ended Sept 30th for both years))
* **Engagement Hours**
* **2018 -> 2019:** 9.4B to 13.7B (+45%)
* **2019 -> 2020:** 10.0B to 22.2B (+123%) ^((9 Months ended Sept 30th for both years))
**Risk Factors** ^(Source: Prospectus Summary Pages 9-10 of SEC Filing)
* Recent rapid growth may not be indicative of future growth.
* History of Net Losses that may not be able to achieve profitability in the future.
* Hard to predict financial situations quarter to quarter. Effected by seasonal demands
* Recent setbacks for business operations due to COVID-19 Outbreak
* Relies heavily on Mobile devices, hardware and networks that they do not control, and changes could affect user experience and retention
* Identified material weakness in internal control over financial reporting which resulted in restatement of their financial states for 2018 and 2019 and first 9 months in 2020.
* The public trading of the Class A common stock may be volatile and could, upon listing on the NYSE, decline significantly and rapidly.
* As of Jan. 2015, the executive officers, directors and holders of 5% or more of the Class A stock collectively own \~65.5% of the outstanding shares and 100% of the outstanding Class B common to maintain substantial control.
# Revenue Generation
Roblox generates revenue in several ways. Players purchase Robux directly for prices ranging from $4.99 to $99.99. Players can spend Robux on game-specific purchases that goes to the Creators with a 30% fee taken out.
Creators can exchange Robux for USD at a current rate $350 per 100,000 Robux as of March 4, 2020. To purchase 100,000 Robux would require 10 purchases of the $99.99 package (10k Robux each) for a total of $999.90.
Roblox also offers three subscription tiers ranging from $4.99 to $19.99 a month, which earns a player Robux and Exclusive store items.
Merchandise plays a role in revenue generation as well. Roblox offers clothing, figurines and gift cards which can be purchased online and in person from places like Amazon, Walmart, Target, and other retail locations.
# Growth Potential and Catalyst
The current outlook for Roblox to grow is promising. There are active investments being made in expanding the age range, international reach, monetization, and technical capabilities of the platform. By continuing to employ modern technology to improve the platform, higher quality experiences and content that appeals to older age demographics can be created.
Current international markets for Roblox include US, Canada, and the United Kingdom. Roblox is actively investing in technology that they hope will enhance their growth around the world. For example, they hope to use automated translation and built-in regional compliance tools to help scale into other global markets.
Monetization is another key component to Roblox growing. Recently Roblox Premium which offers a monthly subscription service to its users was added. Roblox actively works with its creator and developer community to help bring them improve their monetization, which in turn increases Roblox’s monetization. Roblox expects to work with leading brands to build unique marketing opportunities to the platform.
# Competitors and Differences
One of the things to keep in mind about Roblox itself is not a game, but a gaming platform and ecosystem of multiple gaming experiences. Over 18 million games can be launched from their website and played through a downloaded app on the user’s computer. Each game can be completely unique from every other game.
Roblox as a platform would more closely related to that of Steam (by Valve) or Epic Games Launcher (by Epic) or Origin (by EA). However, instead of purchasing games through this, a user simply launches whichever one of these free experiences they want at any time. There is no purchasing of the game like there is on the other mentioned platforms.
Roblox’s main difference is they use the underlying tools to create Roblox specific games utilizing their Software Development Kit (SDK). Other games launched on Steam or Epic are much more loosely connected to the platforms distributing it, whereas Roblox games are highly connected to the Roblox platform in general. The barrier of entry to create a Roblox gaming experience is much less difficult than to create a game to release on other distribution platforms, however the games themselves are “Roblox-centric” and have common styling, controls, and gaming mechanisms.
Roblox does not charge for the games themselves, but a user buys virtual items and enhancements through their virtual currency called Robux (See “Revenue Generation”). A user can also be a Roblox Creator who can create virtual items that will appear on their character in all games. They can also create their own Roblox experiences and sell items unique to that game on their own store for Robux. Robux can then be turned into real money (100k Robux -> $350 USD) if the creator wishes to cash out, or they can spend it for themselves within Roblox.
# The User Experience and YouTube Scene
When a Roblox player wants to play a game, they navigate to the Roblox website and login. This allows them to browse a list of games and launch the experience within a downloaded application on their computer called the Roblox Player.
Users on the website can change their avatar and browse the shop for various items such as gear, emotes, characters, and other customizations. Players can connect with their friends or join 1 or more groups of other players to form smaller communities to play together.
Roblox is massive in the YouTube scene. The official Roblox channel has \~2.9 Million Subscribers. Some YouTube creators attempt to create their own content and promote it on their channel to earn Robux, which they can then exchange for real-life cash.
Roblox can appeal to different age groups for different reasons. While younger age-groups are the ones playing the game, older age-groups are finding ways to make tons of money as developers and creators.
*In 2020, Roblox was the second most watched game on YouTube (second only to Minecraft)*
# Conclusion
Being relatively new to trading and this being my first due-diligence for a company, I hesitate to make any sort of predictions personally on where this price will go up or down. My gut tells me the $45 price doesn't feel over or under valued, but I think Roblox has a lot of growth potential over the next year.
**Again, you should NOT take any of this as sound financial advice. I am very new to this.**
I do welcome all criticisms and feedback you have to offer. Tell me what's good, bad and missing from this DD!
| 160 |
GhostfromTexas
| 1,614,999,001 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lysdir/dd_upcoming_roblox_rblx_ipo_next_week_march_10th/
|
lv5wlm
|
gpaklcw
|
The logic here is that you don't believe the company is going to be profitable as it was before when you first invested. If you find another company that you understand is undervalued or has a better future then reallocation is perfectly fine. Also if you have no need or other use for the money you should not sell since you incur a tax hit. Profit taking is perfectly fine but you should do it for the right reasons. If you have no logic to buy or sell then you are just gambling and jumping on the hype.
| 21 |
rportin
| 1,614,602,440 |
Why it is usually a mistake for investors to take profits
|
>This conventional wisdom pervades much of the financial industry. As the old saying goes, “it’s never wrong to take a profit”. A client is unlikely to be unhappy or indeed notice if you sell a stock that subsequently goes up significantly. The loss of foregone upside is not captured in performance data. Perhaps it should be.
>On the other hand, if an investment manager continues to hold the stock in question and its price starts to fall, the drop will be clearly visible in performance data. The manager should expect to be asked, if not chastised, about it. That is why, from the investment manager’s point of view, it is never wrong to take a profit.
>What about the client? For the client, equity investing is asymmetric — the upside of not selling is nearly unlimited, while the downside is naturally capped. For the client it can be very wrong to take a profit. Sadly, too few fund managers try to get investment right for investors. Most conventions and practices exist to serve, protect and enrich investment managers’ interests.
>In fact, it is often not just wrong to take a profit, but it can be the worst possible mistake. [...]
>In 1999, Goldman Sachs invested in Chinese ecommerce company Alibaba. Shirley Lin, who worked for its private equity fund, has said she was offered the chance to invest $5m for a 50 per cent stake. Unfortunately, she said her colleagues deemed $5m too risky and so they opted for investing a “safer” $3m.
>Five years later their stake was worth $22m, a seven-fold return. At this point, the decision was taken to sell. In many ways this was a remarkably successful investment until, that is, you realise that today those shares would be worth more than $200bn. That investment alone, if held, would have been worth nearly double the value of the whole of Goldman Sachs today.
https://www.ft.com/content/f8f8b067-e663-4afe-90dd-6a243929af86
https://archive.is/rBE12
| 90 |
blorg
| 1,614,594,707 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lv5wlm/why_it_is_usually_a_mistake_for_investors_to_take/
|
lv5wlm
|
gpapqtc
|
The missing part of the article that you linked above is the rationale on why the investment manager who wrote the piece feels like holding is the right thing to do.
The article goes on to cite an academic study which references 1% of stocks account for most of the gains. We’ve seen this played out almost everywhere, including with famous investors like Buffett (where Geico and BNSF accounted for most of his gains). This is played out time and time again with strong companies across the board. Another example is a $10 investment in UnitedHealth in 1990 is worth over $5,400 today. That’s a 540x return on your investment, and if you read their investor notes, you’ll see that there’s still room for their organization to grow.
The investment management author goes on to indicate that active management should be focused on finding and keeping the winners.
The philosophy makes sense when you think about it. I routinely practice it myself, where I continue to buy into the same stocks on a regular basis. The idea is that winning stocks can continue to win on a consistent basis. This does not mean that every single week or month will be green (I promise that you will have plenty of red days), but if you’re buying consistently, you’ll end up in a much better place over time vs not buying at all.
Not selling does not mean that you can never rebalance or trim to take profits into strength. Part of actively managing your portfolio means that you should be rebalancing periodically. This can play a part of any investment strategy; whether you’re a 3-fund boglehead type of investor, or if you’re a person who buys individual stocks.
May your return sequence be profitable.
Good luck!
| 11 |
Meymo
| 1,614,605,807 |
Why it is usually a mistake for investors to take profits
|
>This conventional wisdom pervades much of the financial industry. As the old saying goes, “it’s never wrong to take a profit”. A client is unlikely to be unhappy or indeed notice if you sell a stock that subsequently goes up significantly. The loss of foregone upside is not captured in performance data. Perhaps it should be.
>On the other hand, if an investment manager continues to hold the stock in question and its price starts to fall, the drop will be clearly visible in performance data. The manager should expect to be asked, if not chastised, about it. That is why, from the investment manager’s point of view, it is never wrong to take a profit.
>What about the client? For the client, equity investing is asymmetric — the upside of not selling is nearly unlimited, while the downside is naturally capped. For the client it can be very wrong to take a profit. Sadly, too few fund managers try to get investment right for investors. Most conventions and practices exist to serve, protect and enrich investment managers’ interests.
>In fact, it is often not just wrong to take a profit, but it can be the worst possible mistake. [...]
>In 1999, Goldman Sachs invested in Chinese ecommerce company Alibaba. Shirley Lin, who worked for its private equity fund, has said she was offered the chance to invest $5m for a 50 per cent stake. Unfortunately, she said her colleagues deemed $5m too risky and so they opted for investing a “safer” $3m.
>Five years later their stake was worth $22m, a seven-fold return. At this point, the decision was taken to sell. In many ways this was a remarkably successful investment until, that is, you realise that today those shares would be worth more than $200bn. That investment alone, if held, would have been worth nearly double the value of the whole of Goldman Sachs today.
https://www.ft.com/content/f8f8b067-e663-4afe-90dd-6a243929af86
https://archive.is/rBE12
| 90 |
blorg
| 1,614,594,707 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lv5wlm/why_it_is_usually_a_mistake_for_investors_to_take/
|
lv5wlm
|
gpafaaz
|
Basically what they are saying, yes you can lose everything but at most its 100%, but you can win infinity.....What a stupid take lmao.
| 18 |
gianmk
| 1,614,598,161 |
Why it is usually a mistake for investors to take profits
|
>This conventional wisdom pervades much of the financial industry. As the old saying goes, “it’s never wrong to take a profit”. A client is unlikely to be unhappy or indeed notice if you sell a stock that subsequently goes up significantly. The loss of foregone upside is not captured in performance data. Perhaps it should be.
>On the other hand, if an investment manager continues to hold the stock in question and its price starts to fall, the drop will be clearly visible in performance data. The manager should expect to be asked, if not chastised, about it. That is why, from the investment manager’s point of view, it is never wrong to take a profit.
>What about the client? For the client, equity investing is asymmetric — the upside of not selling is nearly unlimited, while the downside is naturally capped. For the client it can be very wrong to take a profit. Sadly, too few fund managers try to get investment right for investors. Most conventions and practices exist to serve, protect and enrich investment managers’ interests.
>In fact, it is often not just wrong to take a profit, but it can be the worst possible mistake. [...]
>In 1999, Goldman Sachs invested in Chinese ecommerce company Alibaba. Shirley Lin, who worked for its private equity fund, has said she was offered the chance to invest $5m for a 50 per cent stake. Unfortunately, she said her colleagues deemed $5m too risky and so they opted for investing a “safer” $3m.
>Five years later their stake was worth $22m, a seven-fold return. At this point, the decision was taken to sell. In many ways this was a remarkably successful investment until, that is, you realise that today those shares would be worth more than $200bn. That investment alone, if held, would have been worth nearly double the value of the whole of Goldman Sachs today.
https://www.ft.com/content/f8f8b067-e663-4afe-90dd-6a243929af86
https://archive.is/rBE12
| 90 |
blorg
| 1,614,594,707 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lv5wlm/why_it_is_usually_a_mistake_for_investors_to_take/
|
lv5wlm
|
gpadgry
|
Sell profits - reduce holding risks to zero. Rinse repeat I'd rather do this all day every day than worry about lost opportunity cost
| 29 |
No-Money-391
| 1,614,596,485 |
Why it is usually a mistake for investors to take profits
|
>This conventional wisdom pervades much of the financial industry. As the old saying goes, “it’s never wrong to take a profit”. A client is unlikely to be unhappy or indeed notice if you sell a stock that subsequently goes up significantly. The loss of foregone upside is not captured in performance data. Perhaps it should be.
>On the other hand, if an investment manager continues to hold the stock in question and its price starts to fall, the drop will be clearly visible in performance data. The manager should expect to be asked, if not chastised, about it. That is why, from the investment manager’s point of view, it is never wrong to take a profit.
>What about the client? For the client, equity investing is asymmetric — the upside of not selling is nearly unlimited, while the downside is naturally capped. For the client it can be very wrong to take a profit. Sadly, too few fund managers try to get investment right for investors. Most conventions and practices exist to serve, protect and enrich investment managers’ interests.
>In fact, it is often not just wrong to take a profit, but it can be the worst possible mistake. [...]
>In 1999, Goldman Sachs invested in Chinese ecommerce company Alibaba. Shirley Lin, who worked for its private equity fund, has said she was offered the chance to invest $5m for a 50 per cent stake. Unfortunately, she said her colleagues deemed $5m too risky and so they opted for investing a “safer” $3m.
>Five years later their stake was worth $22m, a seven-fold return. At this point, the decision was taken to sell. In many ways this was a remarkably successful investment until, that is, you realise that today those shares would be worth more than $200bn. That investment alone, if held, would have been worth nearly double the value of the whole of Goldman Sachs today.
https://www.ft.com/content/f8f8b067-e663-4afe-90dd-6a243929af86
https://archive.is/rBE12
| 90 |
blorg
| 1,614,594,707 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lv5wlm/why_it_is_usually_a_mistake_for_investors_to_take/
|
lmk8f3
|
gnvj5ni
|
I found riot by accident...
By searching for riot games.
| 302 |
SpliTTMark
| 1,613,647,901 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnvxa3w
|
Here is my problem. This seems to not have organic visibility. It looks like this is getting pumped due all the publicity around Bitcoin right now. It looks like trying to ride the coat tails of bitcoin.
Something is off about these stocks. It was probably a good stock to buy into a month ago, but that steep wall going straight up right now looks like a dump is on the way.
I've been watching these and I personally would avoid them.
Strictly my opinion.
| 252 |
Dawg4923
| 1,613,657,440 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnwdobw
|
FINALLY a decent analysis of mining that understands network difficulty.
There’s still a couple nits:
Two years is still an optimistic lifetime for a miner. Just because that’s the depreciation rate doesn’t mean they’re actually in service that long. 18 months is probably more realistic.
The cost of hardware is _critical_. When you have such a short lifespan on hardware, capex is _actually your dominant cost not electricity/opex_. The reason miners talk about electric costs so much is because it’s the only thing they sortof control. You can’t do anything about the price Bitmain charges. Capex is the majority of your miner’s lifetime cost, and since you pay it upfront, cash flow sucks.
Network difficulty will more than double and be worse than your estimates. BitMain will absolutely oversell miners. Also, since difficulty adjusts every two weeks, you can’t just multiply profitability by a year. You really need to project a difficulty curve and integrate it. I can’t emphasize enough how much and how quickly difficulty plummets profitability.
I completely agree with your conclusions that these are severely overpriced losers, and want to emphasize that _there is no moat_.
Source: I formerly ran a mine
| 57 |
7366241494
| 1,613,665,125 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
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lmk8f3
|
gnvvyrr
|
Solid DD! My small circle of investor buddies and I have been looking into this space a lot.
Argo Blockchain and BitFarms are way undervalued compared to Riot, Mara, and SOS.
Argo is on track to produce 7BTC daily and BitFarms 9BTC daily. This is including their newest orders of miners not yet operating.
| 52 |
PullingUpFrom40
| 1,613,656,721 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnvsb2o
|
I would wait and buy these on a dip. Been investing in crypto since 2015. Bitcoin always dips.
| 92 |
FestivalPapii
| 1,613,654,601 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnvr6ez
|
I bought a few long dated puts at like 10 strike. They are very cheap. If riot crashes it might offset my loss of my stolen Bitcoin.
| 12 |
Rhona_Redtail
| 1,613,653,895 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
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Page 10 SEC report by RIOT https://ir.riotblockchain.com/annual-reports/content/0001079973-20-000216/riot_10k-123119.htm?TB_iframe=true&height=auto&width=auto&preload=false
"We have a history of operating losses, and we may not be able to achieve or sustain profitability; we have recently shifted our focus to our blockchain and cryptocurrency mining business, and we may not be successful in this business."
"We were previously engaged in animal health and life science-oriented businesses and were not successful in those businesses. "
"Our mining operating costs outpace our mining revenues, which could seriously harm our business or increase our losses."
"As of December 31, 2019, we had approximate balances of cash and cash equivalents of $7.4 million, working capital of $9.3 million, total stockholders' equity of $26.2 million and an accumulated deficit of $217.2 million. To date, we have, in large part, relied on equity financings to fund our operations."
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Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
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# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
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https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
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lmk8f3
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gnvt0bk
|
Great write up. I had similar thoughts about how much MARA has run up compared to bitcoin. I ended up selling MARA yesterday for about 100% gains.
Though I'm still bullish on bitcoin, the price and valuation of MARA is just too high for me to hold.
I do want to stay in on miners so decided to buy a small position in SOS. (Yes, I know it's more risky but it allows me to stay in a miner stock and not have to put up too much capital as well)
| 10 |
ImprSLF
| 1,613,655,029 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnwirsy
|
Look at Argo Blockchain. A fraction of the price of these but capable of mining more than both.
| 7 |
DeeSeeDub
| 1,613,667,296 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnvz0xg
|
I'm riding the $SOS wave hoping it's the next RIOT and MARA.
| 14 |
bupizzle
| 1,613,658,361 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnw25x2
|
So with that siad are there any crypto miners or companies that you like?
I like HIVE however they have the same struggles as MARA/RIOT I'm sure
and I also like GLXY but they don't mine
| 7 |
cannainform2
| 1,613,659,915 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
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noodlesource
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3m
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investing
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https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
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lmk8f3
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gnw3p07
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Heads up for others interested in this area, Coinbase will IPO this year, which is the most popular trading platform for everyday crypto traders. They charge a small fee for every transaction on their platform, so no matter if the crypto market is up or down, there will be people using the system. IPO hasn’t already debuted yet, but people are speculating it to be over $300/share at debut: https://cryptocrunchapp.com/news/coinbase-valued-at-77-billion-on-nasdaq-prior-to-public-listing/
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diarpiiiii
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Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnw6myj
|
Bitcoin mining is like gold mining back in the 1800’s. You might strike it rich, best you can realistically hopeful is breaking even.
I threw a little bit of money into MARA and BLOK for fun. We’ll see what happens.
| 6 |
TheNonDuality
| 1,613,662,009 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnwmnyq
|
the RIOT CEO was on yesterday or the day before saying they have 1 Exahash and current totals are 150 Exahash worldwide. Using 900 coins a day at $50k each, that is $45MM worldwide daily...their 1/150 is $300k/day. So, $27MM/Quarter or $100MM yearly. That's revenue, costs would be large.
For anything longer than a few months, there has not been a point in bitcoin's history where it was better to buy mining equipment than buy actual bitcoin.
Signed - Former miner sold his equipment and bought bitcoin.
| 6 |
TulsaGrassFire
| 1,613,668,874 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnw1y1o
|
Just remember everyone, if it’s on WSB that means you are already too late. The RIOT train is long gone
| 21 |
Stereodog
| 1,613,659,810 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnvrjma
|
It’s called a nonce? What the fuck hahahaha
| 42 |
Professional-Lab6751
| 1,613,654,129 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
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noodlesource
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3m
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investing
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https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
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lmk8f3
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gnvya7d
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Don't forget ARGO blockchain who basically does the same thing
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Spartoz
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Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnvr9st
|
Beautiful write-up with an unbiased view.
Thank you.
| 5 |
path2light17
| 1,613,653,955 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnwyj7q
|
Riot is a fraudulent reverse merger once controlled by one the shaddiest operator in modern investing pump and dump manipulation. Wouldn't touch it. Great short with OTM put. Will drop like a soap when the market panics.
| 6 |
orishasinc2
| 1,613,673,627 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
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investing
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https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
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lmk8f3
|
gnvzvkk
|
All the while DD is great, thanks for writing this up. I would like to point out the fallacy, or plain wrong smoke and mirrors, which is the belief that this time it is institutions and big hedge funds buying up (and therefore the price increase) all the bitcoin.
Here is the thing:
The 2017 mania was Gartner hype cycle peak and what followed would have (at best) reached plateau of productivity (perhaps half of all time high after many years). Back then, the retail mania was legitimate (although even back then, tether spiced up the price here and there, but nothing comparable what is going on this time around). Crypto enthusiasts act vindicated after 2020, all the while conveniently glossing over the fact, that without \~30B empty air + defi leverage billions, it would have continued to fizzle into abyss as hundreds similar Gartner hype cycles before and after crypto. Those who are not aware, here are few facts to think about:
\- Through last 11 months, Tether (which, in kind wording, is sketchy as FUCK entity that is like federal reserve of crypto assets on steroids) has printed 88% of their all historic circulating supply/\~29B worth of dollars, which are always soon after transfered into major crypto exchanges (Binance, Huobi etc.), purchased bitcoins and offloaded to "unknown wallets". It is an entity, which has never had official audit done nor are very highly unlikely to have almost no dollar backing. Hilarious is though, that they are backed to a degree by those bitcoins that they just bought with "minted" dollars. Ridiculous nature in which you print out of thin air, purchase an asset, that then pumps in price, offering you further collateral in the form of bitcoin, followed by another and another round of tether minting to further pump up the price of bitcoin ad infinitum.
\- Also consider the fact, that in greed periods of markets, notoriously thin order books in crypto mean, that dollar : MC ratio is at the very least 1:30, which essentially means, that those currently printed 33B worth of tether already account to 2/3 of total crypto asset class market cap. And this is not taking into account other stable coins, which have also increased in 2020 time period in billions. Those stable coins in nature are similar to tether, as they use something called defi, which in Laymans terms means, that crypto participants use their crypto as a collateral, with interest, to further "mint" more stable coins for themselves, which they then use to purchase more crypto. It is basically usual leverage that exchanges offer. The whole thing is such a ugly house of cards, that the fallout will be horrible for usual retail participants.
Its a ponzi, blatant fraud and will end ugly for majority of participants.
All these things considered, considering the nature of pump and dump of crypto, even something as simple as looking at the yearly price chart, the business model for both RIOT and MARA will be short lived. As you stated of course, timing is difficult, tether could manipulate the price further into million, but the fallout once the manipulation and no real fiat in the system, will result in collapse of the price and both mentioned stocks and their business model. I personally have already purchased long term puts and will continue doing so. In short term, i actually hope this mania fueled by blatant scam, continues.
| 8 |
Ordinary_investor
| 1,613,658,795 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
lmk8f3
|
gnwzi5x
|
All this electricity and power to create... nothing of substance. Pathetic waste of resources.
| 8 |
Jezawan
| 1,613,674,008 |
Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
|
# Due Diligence of Bitcoin Mining stock valuations: RIOT and MARA
Unlike the 2017/18 rise of Bitcoin, the 2020/21 Bitcoin price action has been largely driven and influenced by institutional demand.
With institutional demand comes institutional products. We have seen bitcoin derivatives, bitcoin trusts, and more recently a new way for exposure to bitcoin price action: publicly traded bitcoin mining companies.
There are two bitcoin mining companies which I'd like to review for you here. Both trade on Nasdaq; they are [**RIOT**](https://www.tradingview.com/symbols/NASDAQ-RIOT/) and [**MARA**](https://www.tradingview.com/symbols/NASDAQ-MARA/).
Lets begin with a quick summary on bitcoin mining.
---
## **What is Bitcoin Mining?**
To mine a new block on the bitcoin blockchain you must find a number called a [nonce](https://en.wikipedia.org/wiki/Bitcoin#Mining). The cryptographic combination of the nonce + next block content must be numerically smaller than the network's difficulty target (more on this below). Generating a new nonce is extremely computationally expensive. There is no shortcut, miners must try calculations over and over again until they brute force the correct result. They are trying to find the answer to a math problem; a nonce that hashes correctly with the [SHA-256](https://en.wikipedia.org/wiki/SHA-2) (cryptographical hashing function).
The bitcoin network adjusts how many computations must be done on average to find a valid nonce every 2 weeks. This is called the [difficulty](https://www.blockchain.com/charts/difficulty). The aim is to have a new block mined approximately every 10 minutes. This means that if the mining power is doubled, the difficulty is made 2x harder. Double the energy for the same amount of bitcoin.
We can see an estimate for the [total hash rate being applied to the bitcoin network today](https://www.blockchain.com/charts/hash-rate). Notice that it is about 150m TH/s right now (150 million trillion nonces tried every second). So for every block (every 10 minutes) 9*10^22 attempts are done (90 sextillion) until one lucky participant finds a valid nonce and can "mine" the next bitcoin block. In doing so they get rewarded 6.25 newly generated bitcoin + some bitcoin in transaction fees from users of the network.
You can run code on your computer to try and find the next bitcoin block. In fact, this is how all bitcoin mining used to be done. However, these days you will end up spending more on electricity than you mine in bitcoin. This is because people have developed special ASIC chips designed specially for brute forcing the SHA-256 function. These chips are a factor of 100 times more efficient than your computer.
---
## **Mining on an ASIC Bitcoin Miner**
The biggest producer of ASIC Bitcoin Miners is a Chinese company called [Bitmain](https://en.wikipedia.org/wiki/Bitmain). They produce miners, run many of the miners, and even run many [mining pools](https://antpool.com/) where people can collectively search for the next block and split the profits.
Bitcoin mining becomes incredibly profitable when there is a rapid price increase in bitcoin. This is because there is a lag while new bitcoin mining hardware is being built and deployed to capture excess profit.
So lets take a look at how profitable it is to run an ASIC miner today.
The [Antminer S19 Pro](https://shop.bitmain.com/product/detail?pid=00020201222165500548JAa69Gvu067A) is one of Bitmain's latest machines. It can run an impressive 110 TH/s and uses 3250W of power. On their website Bitmain is listing them at $3769 per machine but in bulk companies can buy them for as low as $2333 (notice they are sold out until at least August).
So:
* **$2333 machine cost**
* Using $0.08/kWh electricity costs ([benchmark for electricity cost in China](https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html)) we get 3.25kW * $0.08 = $0.26 per hour in electricity costs. Assuming we run 24/7 this gives us $0.26 * 24 * 365 = **$2278 in electricity costs per year**
* And how many bitcoin will we mine? Well at 110 Th/s on an ASIC machine we are capturing 110/150,000,000 = 0.0000733% of the total bitcoin network per machine **at current total hash rate**. 52,560 bitcoin blocks mined per year; 6.25 bitcoin reward per block + ~1.25 bitcoin in transaction fees (avg right now) -> 7.5 bitcoin per block * 52,560 blocks -> 394.2k bitcoin per year for the entire network. 0.0000733% of this is **0.289 bitcoin per machine per year = $14,450 revenue (at $50k per bitcoin)**
* **$14,450 - $2278 = $12.2k profit per year**
You can play with the parameters to figure out different profit levels. For example, **if the total hash rate doubled to 300m Th/s, profit per machine would drop to $5k per year.**
Also note that transaction fees fluctuate over time depending on how many people are actually using bitcoin (sending and receiving transactions). See [historic transaction fees](https://www.blockchain.com/charts/transaction-fees).
And how long can you run a machine for?
Running so many calculations slows a machine quickly. Additionally, new faster hardware is introduced making past hardware unprofitable fairly quickly. **As a rule of thumb we can expect a machine to be profitable for about 2 years.** This is also the rate at which companies mark the depreciation of miners on their balance sheet.
In Year 2 the machines become much less profitable than initially.
There have been studies to see where bitcoin mining is occurring through IP address analysis of miners working in pools. The University of Cambridge has a [real-time map](https://cbeci.org/mining_map) in which we can see that in 2020 mining was:
| Country | % Total Hash Rate |
|------------ |------------------- |
| China | 69% |
| Russia | 6% |
| US | 5% |
| Kazakhstan | 5% |
| Malaysia | 4% |
| Iran | 4% |
---
## **RIOT and MARA**
Now that we have a basic overview of how bitcoin mining works let's look our new investment phenomenon: publicly traded NASDAQ listed bitcoin mining companies.
## **RIOT**
Incorporated in July 2000, the company was renamed to Riot Blockchain in October 2017. The company now exclusively mines bitcoin and has a partnership with Coinmint LLC in New York who operate the miners. RIOT was a penny stock for most of its existence and was irrelevant until mid 2020.
How many miners do they have?
* Current status of pre-Dec 2020 orders: [11.5k miners in operation and 10k more to be delivered](https://www.riotblockchain.com/news-media/press-releases/detail/99/riot-blockchain-achieves-milestone-of-1-ehs-in-hash-rate) ([funded from $100m secondary offering in Oct 2020](https://www.sec.gov/Archives/edgar/data/1167419/000107997320000871/riot_s3.htm))
* In December 2020 their stock price rocketed alongside bitcoin ($3->$15 in 1.5 months). They took advantage of this and ran a secondary offering [raising $200m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001054/riot_s3.htm). With this money [they ordered 15k more miners for $35m](https://www.sec.gov/Archives/edgar/data/1167419/000107997320001096/ex99x1.htm). Expected delivery starts in May 2021 with the bulk to be delivered in October 2021.
**Summary: 37,640 machines at full deployment. 11.5k machines today and won't be running the rest until Q3/Q4.**
So ignoring the cost of the machines:
* Operational 11.5k machines at $12.2k profit per year per machine = $137m
* Full capacity (Q3/Q4) 37.6k machine at $12.2k profit per year per machine = $459m
And assets
* Maybe $150m in cash/btc left over from secondary offering and past assets
Note: They may get cheaper electricity costs through their partnership and claim as low as $0.014 per kwh in some releases.
## **MARA**
Incorporated in 2010, the company has a wild history. It first engaged in the exploration and development of uranium and vanadium, then real estate in Southern California, and most recently patent trolling. The company has some questionable leadership and has also been a penny stock for most of its existence. In 2019 (I think?) the company began delving into bitcoin mining.
In September 2019 they purchased 6k S9 Bitmain miners (13.5 TH/s) for $4m. Notice that at 13.5 TH/s: these machines are far from profitable today (I'm not even sure they were profitable back then!).
So more recently they own:
* Current status of pre-Dec 2020 orders: [6.5k miners in operation and 30k more to be delivered](https://www.marathonpg.com/news/press-releases/detail/1226/bitmain-ships-4000-antminer-s-19-pro-asic-miners-to) ([funded from $100m secondary offering in Aug 2020](https://www.sec.gov/Archives/edgar/data/1507605/000149315220014870/forms-3.htm))
* In December 2020 ran another secondary offering after their stock price went from $2->$14 in a month. [They raised $200m](https://www.sec.gov/Archives/edgar/data/1507605/000149315220023410/forms-3.htm). With this money they ordered 70k more miners (delivery of 7k in July, 63k in December) for $168m
* In January 2021 they ran yet another secondary offering raising [$300m more](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000864/forms-3asr.htm). They used $150m of this to buy 4.8k bitcoin at $31k per coin
**Summary**
* **Operational 6.5k miners = $79m per yr**
* **Full capacity (Dec 2021) 103k miners = $1.25bn per yr!**
**They also made ~$90m on their bitcoin holdings so far ($150m -> ~$240m)**
Impressive numbers right? Well..
---
## **Too good to be true?**
So what are RIOT and MARA trading at you may ask?
With the recent jump of bitcoin to $50k, RIOT and MARA have rocketed.
* RIOT closed at $77.90 per share, **a market cap of $5.3bn**
* MARA closed at $47.90 per share, **a market cap of $4.5bn**
Investor euphoria is at all time highs. So much so that their price action has rapidly [outpaced](https://i.imgur.com/VjQTaA3.png) and [diverged](https://i.imgur.com/wwzoTn6.png) from bitcoin.
So is it because they have such huge potential? If RIOT gets all of its hardware delivered is it really going to be making $459m per year? And MARA $1.25bn per year!?!
Well, probably not..
* As bitcoin price goes up, mining becomes VERY profitable and there is a rush to build and deploy more hardware. From Oct to Dec 2017 the price of bitcoin famously went from $4k to $20k. Total hash rate went up about 60% during this time. [However, it went up a massive 600% over the following 9 months as new miners were produced and deployed](https://www.blockchain.com/charts/difficulty) with a lag.
* As the price of bitcoin capped out and then dipped mining soon became unprofitable at such a high total hash rate and miners lost a lot of money.
* Both RIOT and MARA are pending receipt of the majority of their miners and won't be taking delivery until late 2021/early 2022. What will the network's total hash rate be by then? What will bitcoin price be by then? Chinese miners won't be sitting by idle.
* And we ignored the cost of the machines! In the future RIOT and MARA will need to buy new machines. Regardless of the market the old ASIC miners will quickly trend towards unprofitability. Bitcoin is closed system; There will only be a maximum of 328.5k + tx fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next "halving". A company cannot reliably mine more bitcoin/capture more of the network because if they are finding it profitable to increase their hash rate then you can be certain every other miner is doing the same. How many $100m secondary offerings can they do for this free lunch?
* Take a look at the [past financials of these companies](https://www.sec.gov/ix?doc=/Archives/edgar/data/1167419/000107997320000948/riot10qq3-0920.htm). RIOT mined an "impressive" $2.4m worth of bitcoin in Q3 2020. Their costs were $1.3m in electricity/rent/etc. + $1.2m depreciation ($2.5m!). Once you add in their $2m of salaries and marketing they had an operating loss of -$2.1m for the quarter. Their bitcoin did appreciate by a cool $385k meaning their net loss for the quarter ended at -$1.7m.
* Of course their next quarter should look wildly better thanks to bitcoins Q4 2020 price action. But this is not a business that is massively profitable under normal market conditions.
The bull case:
* Bitcoin keeps rocketing and never comes back. The total hash rate doesn't catch up and $50k btc becomes $1m btc. MARA's $1.25bn revenue next year becomes $12.5bn before ASIC miner production catches up. Investors doubled their money.
Of course, if it becomes so profitable one wonders if Bitmain decides it is better value to use the miner's themselves and breach their contract.
---
## **Tobin's Q**
Simply stated, when you invest in a RIOT or MARA you are investing in the profitability/unprofitability of bitcoin mining over the next 1-2 years.
It could be hugely profitable, or it could crash and burn like it did in 2018 and you see no returns.
In this instance, you are paying the executive team of MARA and RIOT to buy the hardware, plug it in, and sell any bitcoin for you. There isn't much more to it than that - you could buy the hardware yourself and run a few machines if you found a good electric company to partner with for cheap electricity.
So perhaps a good way to see what kind of premium you are paying to own bitcoin miner exposure through these NASDAQ companies is the [Q Ratio](https://en.wikipedia.org/wiki/Tobin%27s_q). The Q ratio is the market cap of the company divided by the replacement costs of its assets.
RIOT
* Market Cap $5.3bn
* Current btc miners 11.5k ($27m)
* Ordered btc miners 26k ($60m)
* $150m cash remaining (guess)
* **A whopping Q ratio of 22.4! And 63% of that is cash, 25% in orders!**
MARA
* Market Cap $4.5bn
* Current btc miners 6.5k ($15m)
* Ordered btc miners 96.5k ($225m)
* $240m in bitcoin
* $100m cash remaining (guess)
* **A "value" Q ratio of 7.75!**
With this approach, RIOT is trading at a 22.4x premium today and MARA a 7.75x.
A criticism of this valuation methodology may be that it is justified paying a premium when orders for new hardware are so backlogged. Just remember that these companies are also stuck in that backlog and won't have most of their machines online until 2022. Is it really worth such a premium?
---
## **Other factors to consider**
These companies have questionable management. **The CEO of MARA has awarded himself [compensation in excess of $300m](https://www.sec.gov/Archives/edgar/data/1507605/000149315221000469/form8-k.htm) over the last few months. Realise that the market cap of MARA was less than $300m just 3 months ago.**
Both companies are quick to do secondary offering after secondary offering at such high prices. MARA has been more aggressive recently and the downward pressure of insider selling and secondary share offerings has resulted in the price moving from $20->$48 in the time RIOT has gone from $20->$77.
A read through both of their 10-Qs will give you paragraphs of legal claims, shareholder class actions, and past investment write-offs due to corruption/shady circumstances.
These companies have no moat. They have no IP. They have no key talent hires. They are simply ordering ASIC miners, plugging them in, and having the biggest pay-days of their lives.
---
## **Trading strategies**
So is there a trading strategy I would recommend?
### **Bear**
**The challenge with being a bear in this market is you have to seriously consider whether the risk/reward is there for betting on the downside.**
Right now the market doesn't care for your fundamentals. Bitcoin has passed $50k, the narrative is that its going to $100k. The market expects these stocks to continue to trade at multiples and be 10x higher in a month.
It sounds ridiculous but it keeps happening. It is far too dangerous to be short these stocks. Or worse, short calls and you could be bankrupt on 1 intra-day move.
So that leaves you with puts. Average implied vol nearing 300% does not make them cheap.
If you truly have conviction that there will be a correction in the near term then consider weekly bear spreads.
Longer DTE plays are insanely expensive and run the risk of the many secondary offerings eventually justifying a price higher than your price target.
Another interesting idea would be a relative trade. If you could find exposure to bitcoin mining at <20x premium your long run earnings could net out. However, all publicly traded companies are similarly ludicrous so you'd have to buy a stake in btc mining privately or try and own some ASIC miners yourself.
More simply you could go long bitcoin and short RIOT/MARA. This should converge in the long run. The risk is that short term the short position will be impossible to risk manage and there is always the risk of more secondary offerings.
### **Bull**
Buy as far OTM weekly calls as you can at 400% IV and hope that momentum market continues. Fundamentals are for the 2010s.
---
### **Other**
Both RIOT and MARA's stock price spent some time consolidating down from ~28 to the 16-22 range when bitcoin corrected back from its initial $45k run up back to to $30k.
It is possible they will again if bitcoin has a pullback. However, the price action of these stocks has diverged even from bitcoin for the time being.
Ultimately the price action we are seeing now is purely momentum/hype/technical and probably retail driven. Long term and as far as future earnings go this play is a loser. But be careful; that doesn't seem to matter right now.
---
*Disclaimer: This is not financial advice; do your own DD and trade at your own risk. Positions: I hold 1 60/50 put debit spread for Feb 26th for each company.*
---
**TLDR; Bitcoin mining stock valuations are about as crazy as the valuations of all growth stocks in this market. Fuelled by retail demand of people who don't know what a blockchain is but their crypto-millionaire friend told them its revolutionary. "The greater fool" investing 101.**
| 3,437 |
noodlesource
| 1,613,646,022 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/lmk8f3/due_diligence_of_bitcoin_mining_stock_valuations/
|
llamrw
|
gnqk1to
|
I was on Metromile for a year as a customer. It was fine for the first few months but is really only a value if you drive very little. I drove to Wyoming from Virginia for a road trip and had to cancel my Metromile because it would have been a $500 insurance cost. That's 10 months of premium just on one trip!
I paid Metromile ~$50 a month in insurance which was lower than the ~$70 in Geico. But those 2-3x a year trips made it completely impractical as a long-term solution and for $50 I had to constantly worry about how much I was driving.
Now I just pay $70 and don't have to worry about how much I drive. Peace of mind is worth $20 extra.
| 14 |
ReyesA1991
| 1,613,541,595 |
$MILE DD: MetroMile JUST went public - here is why I'm investing in this InsureTech DISRUPTOR the market is sleeping on
|
First of all, this is not financial advice, you should always do your own DD before listening to internet strangers - but you already know that.
Second, the majority of this information can be found and validated in the MetroMile investor presentation here: [https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf](https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf)
Third, this is my first DD so go easy. Estimated reading time 12 minutes.
# Ticker Info/Position
Ticker: $MILE (formally $INAQ who were the SPAC)
Stock Price as of 15th Feb: $17.29
Current Mkt Cap: [projected a $1.3b](https://www.globenewswire.com/news-release/2020/11/24/2132624/0/en/Metromile-a-Leading-Digital-Insurance-Platform-to-Become-Public-Company.html) \- they only just went public and I think their previous 570m cap was from INAQ thus incorrectly reported.
TLDR at the very bottom. My position is 76 shares @ $18.26. It's all I have spare right now as all my other long funds are tied up in BB and NIO, but plan to load up more at the end of the month.
# Notable Investors and Ownership
* A "Shark Tank" has collectively invested $160m, including *Social Capital,* *Miller Value,* *Clearbridge,* *Hudson Structured,* *Mark Cuban,* *and* *New Enterprise Associates*
* Mark Cuban (part of the "shark tank")
* Chamath Palihapitiya (Social Capital, part of the "shark tank")
* Ryan Graves / Saltwater (ex Uber VP of Global Ops, just invested $50m)
# Who are MetroMile?
Quick explanation: MetroMile are a digital pay-per-mile insurance company that are starting to massively disrupt the market with a strong focus on AI, machine learning and user experience.
**Longer description from MM themselves:**
>Metromile is a leading pay-per-mile car insurance company in the U.S. Recognized by Forrester as a top insurance carrier in user experience, it is creating a loyal community of drivers with personalized insurance that is customized to each driver to be more affordable. Powered by machine learning and customer-centric design, Metromile is at the forefront of disrupting a more than $250 billion personal auto insurance industry that has gone unchanged for decades. Through Metromile Enterprise, our software-as-a-service business group, we license our proprietary artificial intelligence claims platform to automate claims, reduce losses associated with fraud, and unlock the productivity of insurance carriers’ employees so they can work on higher-impact experiences.
>
>We’re a diverse team that combines Silicon Valley’s best technologists with veterans from Fortune 500 insurers and financial service institutions. This approach ensures that we’re as equally focused on loss ratios, unit economics and profitability as on customer experience and technology innovation.
**Market disrupting InsureTech, driven by AI, machine learning and a strong focus on transparency and user experience - why does that sound familiar?**
That's right. When life gives you lemons, you make a disruptive AI based home/rental insurance company called LEMONADE that has blasted off to $163 a share. And when life gives you Lemonade, you take that model and apply it to the pay-per-mile car insurance market.
# "Buffet had Geico. I choose MetroMile" - Chamath Palihapitiya
Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
# Product Highlights
* Cancel your coverage any time
* All measured and tracked through a innovative mobile app and dongle (note, this dongle also aids in the recovery of stolen vehicles - they claim they have a 92% stolen vehicle recovery rate)
* The app/dongle also monitors your car's health (engine issues etc) and can help avoid parking tickets with the street sweep feature
* You’ll never have to worry about “going over” on your miles – all miles over 250 (or 150 for New Jersey drivers) in one day are free
* Flexible coverage options (comprehensive, collision etc)
* They state the average customer saves $741/year, if you drive less than 2,500 miles a year (like I do) you would average a saving of $947, that is HUGE.
* Sophisticated AI driven claim system makes filing and dealing with a claim a piece of cake, all achievable through the app
* Try before you buy - their FREE Ride Along app analyses your driving and allows you to calculate what you could save and then convert into a real customer, they claim 11% of abandoned quotes online then go onto try Ride Along. The app in general has a 25% referral rate and a 20% conversion rate which is HUGE.
* Their tech allows enhanced detection of fraudulent claims which lead to a +10% improvement to their contribution margin: Algorithmic Accident Reconstruction replaces manual investigation, More potential fraud cases identified, More potential cases successfully investigated, More confirmed fraud
# The Numbers
* The U.S. auto insurance market is worth **$250B**, globally $700B
* No U.S. operator has more than 20% market share
* They have incredibly loyal customers, with **industry leading 1 year retention** of 63.1% (vs Lemonade's 62%, Roots 33.2%)
* They **industry lead** in renewal loss ratio, loss ratio, fraud detection and annualised premium metrics
* Recent investment and the IPO means they have an est. **$294m CASH to pursue growth**
* Their contribution margin has increased **EVERY YEAR** for 5 years, from - 25% in 2016 to +13% in H1 2020
* Their loss ratio has decreased **EVERY YEAR** for 5 years, from 101% in 2016 to an industry leading 59% in H1 2020
* $MILE have spent the last 8 years developing and fine tuning their technology and infrastructure, they are now firmly in **growth and profit mode** forecasting to hit **profitability by Q2 2022**.
Here's what that operating profit forecast looks like:
|2018|2019|2020|2021|2022|2023|2024|
|:-|:-|:-|:-|:-|:-|:-|
|\-41.2m|\-42.8m|\-24.8m|\-20.7m|\+3.1m|\+87.1m|\+225.0m|
*(if this is tricky to read on mobile, they are forecasting hitting +$3.1m in 2022 and then rocketing to +$87m in 2023 and +$225m in 2024)*
# How good are the team behind it?
Full disclosure, the below are all excerpts taken from [MetroMile's website](https://www.metromile.com/about-us/) and not my words, but they looks impressive.
**CEO Dan Preston:**
>*Joined Metromile in 2013 as Chief Technology Officer before becoming Chief Executive Officer in 2014. Under his leadership, Metromile has experienced significant policy, premium and employee growth. The company has also established itself as the industry leader in leveraging artificial intelligence and machine learning to improve the customer experience and lower loss ratios. Metromile has been voted a Best Place to Work by Glassdoor and the Phoenix Business Journal.*
>
>*Prior to joining Metromile, Dan was the co-founder and CTO of AisleBuyer, a mobile retail innovator that was acquired by Intuit in April 2012. He has published several research papers on machine learning with applications such as astrophysics, remote sensing, and computer vision.Dan holds a master's degree in Computer Science with a specialization in Artificial Intelligence, Machine Learning, and Computer Vision from Stanford University and a bachelor's degree in Computer Science from Brandeis University, where he received the Michtom Prize for Outstanding Achievement in Computer Science and graduated Summa Cum Laude with highest honors in Computer Science.*
**CTO Paw Andersen:**
>*A technologist with over 20 years of engineering leadership experience. He was most notably a senior leader of engineering in Uber's Advanced Technology group, where he grew his team from 27 to 700. Beyond ride-sharing and autonomous vehicles, he's been on the front lines of technical challenges in several sectors, including geographic information systems, fintech and e-commerce, ranging from small startups to large, established companies.*
**And then Founder & Chairman David Friedberg, the below is what I have accumulated from researching Wiki, the NY Post and Linkedin:**
>*Former Google employee. The thing that stands out to me is that he was the FOUNDER and CEO of the Climate Corporation for 9 years, which he successfully lead to a $1B sale to Monsanto in 2013. The Climate Corporation (now known as Climate Field View) is a digital agriculture company that examines weather, soil and field data to help farmers determine potential yield-limiting factors in their fields. From nitrogen levels in soil from historical weather, to satellite imagery mapping out crop health & vegetation maps, it uses data science to make farming better. This guys knows his shit and has a wealth of experience in big data.*
# Expansion, Opportunity and Catalysts
* They are currently operational in **just 8 of 50 U.S. states**; Washington, California, Oregon, Illinois, Arizona, Virginia, Pennsylvania and New Jersey.
* They plan to be live in 21 states in 2021 and **49 in 2022**
* Those current 8 states represent 45m potential drivers that can save with MetroMile, that number jumps to 143m drivers in 2022 (with 49 states) representing **$160B in potential premiums** (seriously, if you look at one thing in that investor deck I linked, jump to slide 30)
* The IPO transaction has provided an estimated **$294 Million in cash** to pursue growth opportunities
* They are looking to **expand and cross sell into other verticals** such as; Homeowners, Renters, Pet, Warranties & Maintenance through 2021-2022
* They are **licensing their leading AI claims platform** and cannot be just viewed as an auto insurance provider (more on that below)
* They are integrating and partnering with car manufacturers to refer customers, 2 are already signed up and **one of them is** [**FORD**](https://www.fintechfutures.com/techwire/metromile-and-ford-team-up-to-bring-highly-personalized-car-insurance-to-ford-owners/), they expect **8 by 2022** so keep an eye out for announcements
* There are ambitions to go global
* In December they provided a Q3 earnings update and 2020 forecast exceeding expectations ([Source](https://www.globenewswire.com/news-release/2020/12/16/2146566/0/en/Metromile-Raises-Policies-in-Force-and-Contribution-Profit-Expectations-for-Full-Year-2020-Provides-Update-on-Third-Quarter-2020-Financial-Metrics-and-Reaffirms-Outlook-for-2021-20.html)), we should be due Q4/2020 final numbers soon
# NOT just an insurance provider - FinTech LICENSING Growth
This one is important and needs attention - you know that leading, sophisticated, claims AI platform they've built? They are now LICENSING that through their [MetroMile ENTERPRISE](https://enterprise.metromile.com/) arm of the business, and its **built to work on top of standard claims management software**.
* This licensing delivered $5.6m additional revenue in 2020 and is forecast to increase significantly YoY ($12.4m in 2021 > $21.7m 2022 > $33.7m in 2023 > $48.3m in 2024) - you cannot just look at $MILE as an insurance disruptor, they are also **a** ***software/technology company***
* It seems they are not allowed to name everyone who is using their Enterprise tech at this time but do list Tokio Marine, a "Top 10 US Carrier" and a "US Carrier". They say they have 4 deployed, 22 planned by 2022 and 46 in the pipeline.
# What about the competition?
On a technology level, the closest form of competition I can see is [Root](https://www.joinroot.com/test-drive/), however their USP is that they quote you based on your driving behaviour. It utilises machine learning and an app that analyses your driving before pricing you up. MetroMile does the opposite, it does not charge you at all based on your behaviour, it is per mile.
Lemonade could also be classed as a competitor but they focus on the home/rental vertical.
On a business model level, Mile Wise (from All State) is the closest, they are also using a pay-per-mile model but lack the same depth of tech behind them compared to $MILE from what I can see.
# The world and our habits have changed, $MILE are poised to grab that by the horns
* A pandemic riddled world has seen hundreds of millions of people driving less and burning cash on insured vehicles sitting on their drive ways unused - myself included
* In the UK, at the height of the pandemic last year only 22% of cars were on the road ([Source](https://www.gocompare.com/motoring/reports-statistics/coronavirus-travel-report/)), that's a whopping 78% decrease and that is not even taking into account that the 22% on the road were likely driving less than usual *(YES...I understand $MILE is a U.S. company, unfortunately I could not find any U.S. equivalent data but it's still a relevant stat no doubt replicated to varying degrees throughout the world)*
* A survey shows after the pandemic **25% of drivers** plan to drive less: [Source](https://www.thisismoney.co.uk/money/cars/article-8260957/A-fifth-motorists-claim-theyll-drive-lockdown.html) *(sorry, another UK source I know but I couldn't find similar for the U.S., this is a generalisation of the western world but again as above it will be replicated no doubt to varying degrees)*
* OK...so as I was typing I found this which shows **US mileage dropped by as much as 60%** during the height of the pandemic last year: [Source](https://www.npr.org/sections/coronavirus-live-updates/2020/05/06/851001762/the-pandemic-emptied-american-roads-but-driving-is-picking-back-up?t=1613224790884) \- the caveat is of course that mileage and car use will absolutely pick up as the pandemic ebbs and flows and eventually ends
* **22.7% of employed Americans** were working from home in September due to the pandemic and in management/professional occupations that number rockets to over 40%: [Source](https://www.bloomberg.com/news/articles/2020-10-05/americans-are-driving-less-than-before-pandemic-and-it-s-permanent)
* When the world emerges from this, office hours and behaviour will never be the same, working-from-home and hybrid "x days at home and x days in the office" will become the norm, the pandemic has forced companies and employees to prove they can work just fine from home - and that they have, in many cases exceeded expectations.
Before the pandemic was a thing there was STILL a clear need for this in the market, this was always going to be an appealing and great model, COVID19 has simply been a catalyst to bring $MILE to the forefront quicker. Ready to expand.
Do you really think all these people who have picked up recipe box subscriptions, online grocery shopping, at home spin/peloton classes and more will revert back to the old way pre-pandemic? Some may, but most will not. People like convenience and ease of use. New habits will stay.
# Cons/Watch Outs
* The move to hybrid or work-from-home models may not be adopted as much as we think post-pandemic - personally I don't think this will be an issue because 1) I just cannot see a world where businesses don't adapt to this, it ultimately saves them money and 2) this business model is not built on a pandemic, as I said COVID19 has simply been a catalyst to drive adoption and awareness.
* The insurance goliaths (i.e. Geico) develop or market their own pay-per-mile model (I am not based in the U.S. so any additional insight in the comments from you guys is welcome, let's make this a discussion) - I don't see this happening any time soon, at least, not to the same complexity that $MILE are achieving, it would require huge investment and development to build anything near what $MILE have but you can't rule Buffet/Geico out
* Someone like Lemonade expand into the motor/pay-per-mile sector
* Root create a pay-per-mile model (unlikely imo due to their entire business being based on quoting your behaviour but you cant rule it out)
* Targeting infrequent drivers is a bit of a niche however this can also be viewed as a positive as they are set to dominate said niche
* For whatever reason, they do not expand to as many states as quickly as they desire, I will not pretend to understand what potential red tape is there
* The forecasted profits are from their investor deck so they are of course going to big themselves up, regardless I like what I see
# Wrap Up/TLDR
***"Buffet had Geico. I choose MetroMile"*** \- Chamath Palihapitiya. Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
This is not a swing trade, this is not that P&D shit, this is a buy early, hold and ride the wave of a growing company built on great tech, a great team and a great business model. Here's your TLDR; read it properly and actually make a decision for yourself because I feel this is a sleeping giant just waiting to explode.
$INAQ's share price jumped from around $9 pre SPAC announcement in December to around $17 today. However since completing the merger on Wed 10th Feb 2020 and the ticker renaming to $MILE the price has barely moved, dipping a dollar or so and maintaining pre merger completion levels. I feel like the market are really sleeping on this and they are flying under the radar so I am getting in now before they reach their potential. I like the stock, I have a lot of confidence in it.
| 105 |
WillSpur
| 1,613,501,336 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/llamrw/mile_dd_metromile_just_went_public_here_is_why_im/
|
llamrw
|
gnp4wxb
|
I’m surprised a lot of people here are commenting that Metromile wasn’t able to be significantly cheaper for them. They were able to get me $61+$0.10/mile when everyone else was charging $140+. I’m not invested in them btw.
One thing they lack is Lemonade’s advertising to their niche. All millennials and older zoomers think of Lemonade first when asked of renter’s insurance. Nobody knows of Metromile despite being twice as old now.
Will WFH/Hybrid workplace setups be the catalyst to take Metromile to the next level? I’m not convinced because those value oriented consumers may always just take alternative transportation or get Uber/Lyft passes.
| 10 |
chalybsumbra
| 1,613,514,342 |
$MILE DD: MetroMile JUST went public - here is why I'm investing in this InsureTech DISRUPTOR the market is sleeping on
|
First of all, this is not financial advice, you should always do your own DD before listening to internet strangers - but you already know that.
Second, the majority of this information can be found and validated in the MetroMile investor presentation here: [https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf](https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf)
Third, this is my first DD so go easy. Estimated reading time 12 minutes.
# Ticker Info/Position
Ticker: $MILE (formally $INAQ who were the SPAC)
Stock Price as of 15th Feb: $17.29
Current Mkt Cap: [projected a $1.3b](https://www.globenewswire.com/news-release/2020/11/24/2132624/0/en/Metromile-a-Leading-Digital-Insurance-Platform-to-Become-Public-Company.html) \- they only just went public and I think their previous 570m cap was from INAQ thus incorrectly reported.
TLDR at the very bottom. My position is 76 shares @ $18.26. It's all I have spare right now as all my other long funds are tied up in BB and NIO, but plan to load up more at the end of the month.
# Notable Investors and Ownership
* A "Shark Tank" has collectively invested $160m, including *Social Capital,* *Miller Value,* *Clearbridge,* *Hudson Structured,* *Mark Cuban,* *and* *New Enterprise Associates*
* Mark Cuban (part of the "shark tank")
* Chamath Palihapitiya (Social Capital, part of the "shark tank")
* Ryan Graves / Saltwater (ex Uber VP of Global Ops, just invested $50m)
# Who are MetroMile?
Quick explanation: MetroMile are a digital pay-per-mile insurance company that are starting to massively disrupt the market with a strong focus on AI, machine learning and user experience.
**Longer description from MM themselves:**
>Metromile is a leading pay-per-mile car insurance company in the U.S. Recognized by Forrester as a top insurance carrier in user experience, it is creating a loyal community of drivers with personalized insurance that is customized to each driver to be more affordable. Powered by machine learning and customer-centric design, Metromile is at the forefront of disrupting a more than $250 billion personal auto insurance industry that has gone unchanged for decades. Through Metromile Enterprise, our software-as-a-service business group, we license our proprietary artificial intelligence claims platform to automate claims, reduce losses associated with fraud, and unlock the productivity of insurance carriers’ employees so they can work on higher-impact experiences.
>
>We’re a diverse team that combines Silicon Valley’s best technologists with veterans from Fortune 500 insurers and financial service institutions. This approach ensures that we’re as equally focused on loss ratios, unit economics and profitability as on customer experience and technology innovation.
**Market disrupting InsureTech, driven by AI, machine learning and a strong focus on transparency and user experience - why does that sound familiar?**
That's right. When life gives you lemons, you make a disruptive AI based home/rental insurance company called LEMONADE that has blasted off to $163 a share. And when life gives you Lemonade, you take that model and apply it to the pay-per-mile car insurance market.
# "Buffet had Geico. I choose MetroMile" - Chamath Palihapitiya
Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
# Product Highlights
* Cancel your coverage any time
* All measured and tracked through a innovative mobile app and dongle (note, this dongle also aids in the recovery of stolen vehicles - they claim they have a 92% stolen vehicle recovery rate)
* The app/dongle also monitors your car's health (engine issues etc) and can help avoid parking tickets with the street sweep feature
* You’ll never have to worry about “going over” on your miles – all miles over 250 (or 150 for New Jersey drivers) in one day are free
* Flexible coverage options (comprehensive, collision etc)
* They state the average customer saves $741/year, if you drive less than 2,500 miles a year (like I do) you would average a saving of $947, that is HUGE.
* Sophisticated AI driven claim system makes filing and dealing with a claim a piece of cake, all achievable through the app
* Try before you buy - their FREE Ride Along app analyses your driving and allows you to calculate what you could save and then convert into a real customer, they claim 11% of abandoned quotes online then go onto try Ride Along. The app in general has a 25% referral rate and a 20% conversion rate which is HUGE.
* Their tech allows enhanced detection of fraudulent claims which lead to a +10% improvement to their contribution margin: Algorithmic Accident Reconstruction replaces manual investigation, More potential fraud cases identified, More potential cases successfully investigated, More confirmed fraud
# The Numbers
* The U.S. auto insurance market is worth **$250B**, globally $700B
* No U.S. operator has more than 20% market share
* They have incredibly loyal customers, with **industry leading 1 year retention** of 63.1% (vs Lemonade's 62%, Roots 33.2%)
* They **industry lead** in renewal loss ratio, loss ratio, fraud detection and annualised premium metrics
* Recent investment and the IPO means they have an est. **$294m CASH to pursue growth**
* Their contribution margin has increased **EVERY YEAR** for 5 years, from - 25% in 2016 to +13% in H1 2020
* Their loss ratio has decreased **EVERY YEAR** for 5 years, from 101% in 2016 to an industry leading 59% in H1 2020
* $MILE have spent the last 8 years developing and fine tuning their technology and infrastructure, they are now firmly in **growth and profit mode** forecasting to hit **profitability by Q2 2022**.
Here's what that operating profit forecast looks like:
|2018|2019|2020|2021|2022|2023|2024|
|:-|:-|:-|:-|:-|:-|:-|
|\-41.2m|\-42.8m|\-24.8m|\-20.7m|\+3.1m|\+87.1m|\+225.0m|
*(if this is tricky to read on mobile, they are forecasting hitting +$3.1m in 2022 and then rocketing to +$87m in 2023 and +$225m in 2024)*
# How good are the team behind it?
Full disclosure, the below are all excerpts taken from [MetroMile's website](https://www.metromile.com/about-us/) and not my words, but they looks impressive.
**CEO Dan Preston:**
>*Joined Metromile in 2013 as Chief Technology Officer before becoming Chief Executive Officer in 2014. Under his leadership, Metromile has experienced significant policy, premium and employee growth. The company has also established itself as the industry leader in leveraging artificial intelligence and machine learning to improve the customer experience and lower loss ratios. Metromile has been voted a Best Place to Work by Glassdoor and the Phoenix Business Journal.*
>
>*Prior to joining Metromile, Dan was the co-founder and CTO of AisleBuyer, a mobile retail innovator that was acquired by Intuit in April 2012. He has published several research papers on machine learning with applications such as astrophysics, remote sensing, and computer vision.Dan holds a master's degree in Computer Science with a specialization in Artificial Intelligence, Machine Learning, and Computer Vision from Stanford University and a bachelor's degree in Computer Science from Brandeis University, where he received the Michtom Prize for Outstanding Achievement in Computer Science and graduated Summa Cum Laude with highest honors in Computer Science.*
**CTO Paw Andersen:**
>*A technologist with over 20 years of engineering leadership experience. He was most notably a senior leader of engineering in Uber's Advanced Technology group, where he grew his team from 27 to 700. Beyond ride-sharing and autonomous vehicles, he's been on the front lines of technical challenges in several sectors, including geographic information systems, fintech and e-commerce, ranging from small startups to large, established companies.*
**And then Founder & Chairman David Friedberg, the below is what I have accumulated from researching Wiki, the NY Post and Linkedin:**
>*Former Google employee. The thing that stands out to me is that he was the FOUNDER and CEO of the Climate Corporation for 9 years, which he successfully lead to a $1B sale to Monsanto in 2013. The Climate Corporation (now known as Climate Field View) is a digital agriculture company that examines weather, soil and field data to help farmers determine potential yield-limiting factors in their fields. From nitrogen levels in soil from historical weather, to satellite imagery mapping out crop health & vegetation maps, it uses data science to make farming better. This guys knows his shit and has a wealth of experience in big data.*
# Expansion, Opportunity and Catalysts
* They are currently operational in **just 8 of 50 U.S. states**; Washington, California, Oregon, Illinois, Arizona, Virginia, Pennsylvania and New Jersey.
* They plan to be live in 21 states in 2021 and **49 in 2022**
* Those current 8 states represent 45m potential drivers that can save with MetroMile, that number jumps to 143m drivers in 2022 (with 49 states) representing **$160B in potential premiums** (seriously, if you look at one thing in that investor deck I linked, jump to slide 30)
* The IPO transaction has provided an estimated **$294 Million in cash** to pursue growth opportunities
* They are looking to **expand and cross sell into other verticals** such as; Homeowners, Renters, Pet, Warranties & Maintenance through 2021-2022
* They are **licensing their leading AI claims platform** and cannot be just viewed as an auto insurance provider (more on that below)
* They are integrating and partnering with car manufacturers to refer customers, 2 are already signed up and **one of them is** [**FORD**](https://www.fintechfutures.com/techwire/metromile-and-ford-team-up-to-bring-highly-personalized-car-insurance-to-ford-owners/), they expect **8 by 2022** so keep an eye out for announcements
* There are ambitions to go global
* In December they provided a Q3 earnings update and 2020 forecast exceeding expectations ([Source](https://www.globenewswire.com/news-release/2020/12/16/2146566/0/en/Metromile-Raises-Policies-in-Force-and-Contribution-Profit-Expectations-for-Full-Year-2020-Provides-Update-on-Third-Quarter-2020-Financial-Metrics-and-Reaffirms-Outlook-for-2021-20.html)), we should be due Q4/2020 final numbers soon
# NOT just an insurance provider - FinTech LICENSING Growth
This one is important and needs attention - you know that leading, sophisticated, claims AI platform they've built? They are now LICENSING that through their [MetroMile ENTERPRISE](https://enterprise.metromile.com/) arm of the business, and its **built to work on top of standard claims management software**.
* This licensing delivered $5.6m additional revenue in 2020 and is forecast to increase significantly YoY ($12.4m in 2021 > $21.7m 2022 > $33.7m in 2023 > $48.3m in 2024) - you cannot just look at $MILE as an insurance disruptor, they are also **a** ***software/technology company***
* It seems they are not allowed to name everyone who is using their Enterprise tech at this time but do list Tokio Marine, a "Top 10 US Carrier" and a "US Carrier". They say they have 4 deployed, 22 planned by 2022 and 46 in the pipeline.
# What about the competition?
On a technology level, the closest form of competition I can see is [Root](https://www.joinroot.com/test-drive/), however their USP is that they quote you based on your driving behaviour. It utilises machine learning and an app that analyses your driving before pricing you up. MetroMile does the opposite, it does not charge you at all based on your behaviour, it is per mile.
Lemonade could also be classed as a competitor but they focus on the home/rental vertical.
On a business model level, Mile Wise (from All State) is the closest, they are also using a pay-per-mile model but lack the same depth of tech behind them compared to $MILE from what I can see.
# The world and our habits have changed, $MILE are poised to grab that by the horns
* A pandemic riddled world has seen hundreds of millions of people driving less and burning cash on insured vehicles sitting on their drive ways unused - myself included
* In the UK, at the height of the pandemic last year only 22% of cars were on the road ([Source](https://www.gocompare.com/motoring/reports-statistics/coronavirus-travel-report/)), that's a whopping 78% decrease and that is not even taking into account that the 22% on the road were likely driving less than usual *(YES...I understand $MILE is a U.S. company, unfortunately I could not find any U.S. equivalent data but it's still a relevant stat no doubt replicated to varying degrees throughout the world)*
* A survey shows after the pandemic **25% of drivers** plan to drive less: [Source](https://www.thisismoney.co.uk/money/cars/article-8260957/A-fifth-motorists-claim-theyll-drive-lockdown.html) *(sorry, another UK source I know but I couldn't find similar for the U.S., this is a generalisation of the western world but again as above it will be replicated no doubt to varying degrees)*
* OK...so as I was typing I found this which shows **US mileage dropped by as much as 60%** during the height of the pandemic last year: [Source](https://www.npr.org/sections/coronavirus-live-updates/2020/05/06/851001762/the-pandemic-emptied-american-roads-but-driving-is-picking-back-up?t=1613224790884) \- the caveat is of course that mileage and car use will absolutely pick up as the pandemic ebbs and flows and eventually ends
* **22.7% of employed Americans** were working from home in September due to the pandemic and in management/professional occupations that number rockets to over 40%: [Source](https://www.bloomberg.com/news/articles/2020-10-05/americans-are-driving-less-than-before-pandemic-and-it-s-permanent)
* When the world emerges from this, office hours and behaviour will never be the same, working-from-home and hybrid "x days at home and x days in the office" will become the norm, the pandemic has forced companies and employees to prove they can work just fine from home - and that they have, in many cases exceeded expectations.
Before the pandemic was a thing there was STILL a clear need for this in the market, this was always going to be an appealing and great model, COVID19 has simply been a catalyst to bring $MILE to the forefront quicker. Ready to expand.
Do you really think all these people who have picked up recipe box subscriptions, online grocery shopping, at home spin/peloton classes and more will revert back to the old way pre-pandemic? Some may, but most will not. People like convenience and ease of use. New habits will stay.
# Cons/Watch Outs
* The move to hybrid or work-from-home models may not be adopted as much as we think post-pandemic - personally I don't think this will be an issue because 1) I just cannot see a world where businesses don't adapt to this, it ultimately saves them money and 2) this business model is not built on a pandemic, as I said COVID19 has simply been a catalyst to drive adoption and awareness.
* The insurance goliaths (i.e. Geico) develop or market their own pay-per-mile model (I am not based in the U.S. so any additional insight in the comments from you guys is welcome, let's make this a discussion) - I don't see this happening any time soon, at least, not to the same complexity that $MILE are achieving, it would require huge investment and development to build anything near what $MILE have but you can't rule Buffet/Geico out
* Someone like Lemonade expand into the motor/pay-per-mile sector
* Root create a pay-per-mile model (unlikely imo due to their entire business being based on quoting your behaviour but you cant rule it out)
* Targeting infrequent drivers is a bit of a niche however this can also be viewed as a positive as they are set to dominate said niche
* For whatever reason, they do not expand to as many states as quickly as they desire, I will not pretend to understand what potential red tape is there
* The forecasted profits are from their investor deck so they are of course going to big themselves up, regardless I like what I see
# Wrap Up/TLDR
***"Buffet had Geico. I choose MetroMile"*** \- Chamath Palihapitiya. Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
This is not a swing trade, this is not that P&D shit, this is a buy early, hold and ride the wave of a growing company built on great tech, a great team and a great business model. Here's your TLDR; read it properly and actually make a decision for yourself because I feel this is a sleeping giant just waiting to explode.
$INAQ's share price jumped from around $9 pre SPAC announcement in December to around $17 today. However since completing the merger on Wed 10th Feb 2020 and the ticker renaming to $MILE the price has barely moved, dipping a dollar or so and maintaining pre merger completion levels. I feel like the market are really sleeping on this and they are flying under the radar so I am getting in now before they reach their potential. I like the stock, I have a lot of confidence in it.
| 105 |
WillSpur
| 1,613,501,336 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/llamrw/mile_dd_metromile_just_went_public_here_is_why_im/
|
llamrw
|
gnq5b1e
|
Metromile user, insure my Tesla for less than anyone (about 500 miles/month).
Best claim process ever (have used once)
Investor since pre DA.
| 12 |
Corn_eh
| 1,613,532,985 |
$MILE DD: MetroMile JUST went public - here is why I'm investing in this InsureTech DISRUPTOR the market is sleeping on
|
First of all, this is not financial advice, you should always do your own DD before listening to internet strangers - but you already know that.
Second, the majority of this information can be found and validated in the MetroMile investor presentation here: [https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf](https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf)
Third, this is my first DD so go easy. Estimated reading time 12 minutes.
# Ticker Info/Position
Ticker: $MILE (formally $INAQ who were the SPAC)
Stock Price as of 15th Feb: $17.29
Current Mkt Cap: [projected a $1.3b](https://www.globenewswire.com/news-release/2020/11/24/2132624/0/en/Metromile-a-Leading-Digital-Insurance-Platform-to-Become-Public-Company.html) \- they only just went public and I think their previous 570m cap was from INAQ thus incorrectly reported.
TLDR at the very bottom. My position is 76 shares @ $18.26. It's all I have spare right now as all my other long funds are tied up in BB and NIO, but plan to load up more at the end of the month.
# Notable Investors and Ownership
* A "Shark Tank" has collectively invested $160m, including *Social Capital,* *Miller Value,* *Clearbridge,* *Hudson Structured,* *Mark Cuban,* *and* *New Enterprise Associates*
* Mark Cuban (part of the "shark tank")
* Chamath Palihapitiya (Social Capital, part of the "shark tank")
* Ryan Graves / Saltwater (ex Uber VP of Global Ops, just invested $50m)
# Who are MetroMile?
Quick explanation: MetroMile are a digital pay-per-mile insurance company that are starting to massively disrupt the market with a strong focus on AI, machine learning and user experience.
**Longer description from MM themselves:**
>Metromile is a leading pay-per-mile car insurance company in the U.S. Recognized by Forrester as a top insurance carrier in user experience, it is creating a loyal community of drivers with personalized insurance that is customized to each driver to be more affordable. Powered by machine learning and customer-centric design, Metromile is at the forefront of disrupting a more than $250 billion personal auto insurance industry that has gone unchanged for decades. Through Metromile Enterprise, our software-as-a-service business group, we license our proprietary artificial intelligence claims platform to automate claims, reduce losses associated with fraud, and unlock the productivity of insurance carriers’ employees so they can work on higher-impact experiences.
>
>We’re a diverse team that combines Silicon Valley’s best technologists with veterans from Fortune 500 insurers and financial service institutions. This approach ensures that we’re as equally focused on loss ratios, unit economics and profitability as on customer experience and technology innovation.
**Market disrupting InsureTech, driven by AI, machine learning and a strong focus on transparency and user experience - why does that sound familiar?**
That's right. When life gives you lemons, you make a disruptive AI based home/rental insurance company called LEMONADE that has blasted off to $163 a share. And when life gives you Lemonade, you take that model and apply it to the pay-per-mile car insurance market.
# "Buffet had Geico. I choose MetroMile" - Chamath Palihapitiya
Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
# Product Highlights
* Cancel your coverage any time
* All measured and tracked through a innovative mobile app and dongle (note, this dongle also aids in the recovery of stolen vehicles - they claim they have a 92% stolen vehicle recovery rate)
* The app/dongle also monitors your car's health (engine issues etc) and can help avoid parking tickets with the street sweep feature
* You’ll never have to worry about “going over” on your miles – all miles over 250 (or 150 for New Jersey drivers) in one day are free
* Flexible coverage options (comprehensive, collision etc)
* They state the average customer saves $741/year, if you drive less than 2,500 miles a year (like I do) you would average a saving of $947, that is HUGE.
* Sophisticated AI driven claim system makes filing and dealing with a claim a piece of cake, all achievable through the app
* Try before you buy - their FREE Ride Along app analyses your driving and allows you to calculate what you could save and then convert into a real customer, they claim 11% of abandoned quotes online then go onto try Ride Along. The app in general has a 25% referral rate and a 20% conversion rate which is HUGE.
* Their tech allows enhanced detection of fraudulent claims which lead to a +10% improvement to their contribution margin: Algorithmic Accident Reconstruction replaces manual investigation, More potential fraud cases identified, More potential cases successfully investigated, More confirmed fraud
# The Numbers
* The U.S. auto insurance market is worth **$250B**, globally $700B
* No U.S. operator has more than 20% market share
* They have incredibly loyal customers, with **industry leading 1 year retention** of 63.1% (vs Lemonade's 62%, Roots 33.2%)
* They **industry lead** in renewal loss ratio, loss ratio, fraud detection and annualised premium metrics
* Recent investment and the IPO means they have an est. **$294m CASH to pursue growth**
* Their contribution margin has increased **EVERY YEAR** for 5 years, from - 25% in 2016 to +13% in H1 2020
* Their loss ratio has decreased **EVERY YEAR** for 5 years, from 101% in 2016 to an industry leading 59% in H1 2020
* $MILE have spent the last 8 years developing and fine tuning their technology and infrastructure, they are now firmly in **growth and profit mode** forecasting to hit **profitability by Q2 2022**.
Here's what that operating profit forecast looks like:
|2018|2019|2020|2021|2022|2023|2024|
|:-|:-|:-|:-|:-|:-|:-|
|\-41.2m|\-42.8m|\-24.8m|\-20.7m|\+3.1m|\+87.1m|\+225.0m|
*(if this is tricky to read on mobile, they are forecasting hitting +$3.1m in 2022 and then rocketing to +$87m in 2023 and +$225m in 2024)*
# How good are the team behind it?
Full disclosure, the below are all excerpts taken from [MetroMile's website](https://www.metromile.com/about-us/) and not my words, but they looks impressive.
**CEO Dan Preston:**
>*Joined Metromile in 2013 as Chief Technology Officer before becoming Chief Executive Officer in 2014. Under his leadership, Metromile has experienced significant policy, premium and employee growth. The company has also established itself as the industry leader in leveraging artificial intelligence and machine learning to improve the customer experience and lower loss ratios. Metromile has been voted a Best Place to Work by Glassdoor and the Phoenix Business Journal.*
>
>*Prior to joining Metromile, Dan was the co-founder and CTO of AisleBuyer, a mobile retail innovator that was acquired by Intuit in April 2012. He has published several research papers on machine learning with applications such as astrophysics, remote sensing, and computer vision.Dan holds a master's degree in Computer Science with a specialization in Artificial Intelligence, Machine Learning, and Computer Vision from Stanford University and a bachelor's degree in Computer Science from Brandeis University, where he received the Michtom Prize for Outstanding Achievement in Computer Science and graduated Summa Cum Laude with highest honors in Computer Science.*
**CTO Paw Andersen:**
>*A technologist with over 20 years of engineering leadership experience. He was most notably a senior leader of engineering in Uber's Advanced Technology group, where he grew his team from 27 to 700. Beyond ride-sharing and autonomous vehicles, he's been on the front lines of technical challenges in several sectors, including geographic information systems, fintech and e-commerce, ranging from small startups to large, established companies.*
**And then Founder & Chairman David Friedberg, the below is what I have accumulated from researching Wiki, the NY Post and Linkedin:**
>*Former Google employee. The thing that stands out to me is that he was the FOUNDER and CEO of the Climate Corporation for 9 years, which he successfully lead to a $1B sale to Monsanto in 2013. The Climate Corporation (now known as Climate Field View) is a digital agriculture company that examines weather, soil and field data to help farmers determine potential yield-limiting factors in their fields. From nitrogen levels in soil from historical weather, to satellite imagery mapping out crop health & vegetation maps, it uses data science to make farming better. This guys knows his shit and has a wealth of experience in big data.*
# Expansion, Opportunity and Catalysts
* They are currently operational in **just 8 of 50 U.S. states**; Washington, California, Oregon, Illinois, Arizona, Virginia, Pennsylvania and New Jersey.
* They plan to be live in 21 states in 2021 and **49 in 2022**
* Those current 8 states represent 45m potential drivers that can save with MetroMile, that number jumps to 143m drivers in 2022 (with 49 states) representing **$160B in potential premiums** (seriously, if you look at one thing in that investor deck I linked, jump to slide 30)
* The IPO transaction has provided an estimated **$294 Million in cash** to pursue growth opportunities
* They are looking to **expand and cross sell into other verticals** such as; Homeowners, Renters, Pet, Warranties & Maintenance through 2021-2022
* They are **licensing their leading AI claims platform** and cannot be just viewed as an auto insurance provider (more on that below)
* They are integrating and partnering with car manufacturers to refer customers, 2 are already signed up and **one of them is** [**FORD**](https://www.fintechfutures.com/techwire/metromile-and-ford-team-up-to-bring-highly-personalized-car-insurance-to-ford-owners/), they expect **8 by 2022** so keep an eye out for announcements
* There are ambitions to go global
* In December they provided a Q3 earnings update and 2020 forecast exceeding expectations ([Source](https://www.globenewswire.com/news-release/2020/12/16/2146566/0/en/Metromile-Raises-Policies-in-Force-and-Contribution-Profit-Expectations-for-Full-Year-2020-Provides-Update-on-Third-Quarter-2020-Financial-Metrics-and-Reaffirms-Outlook-for-2021-20.html)), we should be due Q4/2020 final numbers soon
# NOT just an insurance provider - FinTech LICENSING Growth
This one is important and needs attention - you know that leading, sophisticated, claims AI platform they've built? They are now LICENSING that through their [MetroMile ENTERPRISE](https://enterprise.metromile.com/) arm of the business, and its **built to work on top of standard claims management software**.
* This licensing delivered $5.6m additional revenue in 2020 and is forecast to increase significantly YoY ($12.4m in 2021 > $21.7m 2022 > $33.7m in 2023 > $48.3m in 2024) - you cannot just look at $MILE as an insurance disruptor, they are also **a** ***software/technology company***
* It seems they are not allowed to name everyone who is using their Enterprise tech at this time but do list Tokio Marine, a "Top 10 US Carrier" and a "US Carrier". They say they have 4 deployed, 22 planned by 2022 and 46 in the pipeline.
# What about the competition?
On a technology level, the closest form of competition I can see is [Root](https://www.joinroot.com/test-drive/), however their USP is that they quote you based on your driving behaviour. It utilises machine learning and an app that analyses your driving before pricing you up. MetroMile does the opposite, it does not charge you at all based on your behaviour, it is per mile.
Lemonade could also be classed as a competitor but they focus on the home/rental vertical.
On a business model level, Mile Wise (from All State) is the closest, they are also using a pay-per-mile model but lack the same depth of tech behind them compared to $MILE from what I can see.
# The world and our habits have changed, $MILE are poised to grab that by the horns
* A pandemic riddled world has seen hundreds of millions of people driving less and burning cash on insured vehicles sitting on their drive ways unused - myself included
* In the UK, at the height of the pandemic last year only 22% of cars were on the road ([Source](https://www.gocompare.com/motoring/reports-statistics/coronavirus-travel-report/)), that's a whopping 78% decrease and that is not even taking into account that the 22% on the road were likely driving less than usual *(YES...I understand $MILE is a U.S. company, unfortunately I could not find any U.S. equivalent data but it's still a relevant stat no doubt replicated to varying degrees throughout the world)*
* A survey shows after the pandemic **25% of drivers** plan to drive less: [Source](https://www.thisismoney.co.uk/money/cars/article-8260957/A-fifth-motorists-claim-theyll-drive-lockdown.html) *(sorry, another UK source I know but I couldn't find similar for the U.S., this is a generalisation of the western world but again as above it will be replicated no doubt to varying degrees)*
* OK...so as I was typing I found this which shows **US mileage dropped by as much as 60%** during the height of the pandemic last year: [Source](https://www.npr.org/sections/coronavirus-live-updates/2020/05/06/851001762/the-pandemic-emptied-american-roads-but-driving-is-picking-back-up?t=1613224790884) \- the caveat is of course that mileage and car use will absolutely pick up as the pandemic ebbs and flows and eventually ends
* **22.7% of employed Americans** were working from home in September due to the pandemic and in management/professional occupations that number rockets to over 40%: [Source](https://www.bloomberg.com/news/articles/2020-10-05/americans-are-driving-less-than-before-pandemic-and-it-s-permanent)
* When the world emerges from this, office hours and behaviour will never be the same, working-from-home and hybrid "x days at home and x days in the office" will become the norm, the pandemic has forced companies and employees to prove they can work just fine from home - and that they have, in many cases exceeded expectations.
Before the pandemic was a thing there was STILL a clear need for this in the market, this was always going to be an appealing and great model, COVID19 has simply been a catalyst to bring $MILE to the forefront quicker. Ready to expand.
Do you really think all these people who have picked up recipe box subscriptions, online grocery shopping, at home spin/peloton classes and more will revert back to the old way pre-pandemic? Some may, but most will not. People like convenience and ease of use. New habits will stay.
# Cons/Watch Outs
* The move to hybrid or work-from-home models may not be adopted as much as we think post-pandemic - personally I don't think this will be an issue because 1) I just cannot see a world where businesses don't adapt to this, it ultimately saves them money and 2) this business model is not built on a pandemic, as I said COVID19 has simply been a catalyst to drive adoption and awareness.
* The insurance goliaths (i.e. Geico) develop or market their own pay-per-mile model (I am not based in the U.S. so any additional insight in the comments from you guys is welcome, let's make this a discussion) - I don't see this happening any time soon, at least, not to the same complexity that $MILE are achieving, it would require huge investment and development to build anything near what $MILE have but you can't rule Buffet/Geico out
* Someone like Lemonade expand into the motor/pay-per-mile sector
* Root create a pay-per-mile model (unlikely imo due to their entire business being based on quoting your behaviour but you cant rule it out)
* Targeting infrequent drivers is a bit of a niche however this can also be viewed as a positive as they are set to dominate said niche
* For whatever reason, they do not expand to as many states as quickly as they desire, I will not pretend to understand what potential red tape is there
* The forecasted profits are from their investor deck so they are of course going to big themselves up, regardless I like what I see
# Wrap Up/TLDR
***"Buffet had Geico. I choose MetroMile"*** \- Chamath Palihapitiya. Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
This is not a swing trade, this is not that P&D shit, this is a buy early, hold and ride the wave of a growing company built on great tech, a great team and a great business model. Here's your TLDR; read it properly and actually make a decision for yourself because I feel this is a sleeping giant just waiting to explode.
$INAQ's share price jumped from around $9 pre SPAC announcement in December to around $17 today. However since completing the merger on Wed 10th Feb 2020 and the ticker renaming to $MILE the price has barely moved, dipping a dollar or so and maintaining pre merger completion levels. I feel like the market are really sleeping on this and they are flying under the radar so I am getting in now before they reach their potential. I like the stock, I have a lot of confidence in it.
| 105 |
WillSpur
| 1,613,501,336 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/llamrw/mile_dd_metromile_just_went_public_here_is_why_im/
|
llamrw
|
gnq57vo
|
I have been using their insurance for years because I don't drive much. I like it
| 5 |
Humble_Geologist7275
| 1,613,532,938 |
$MILE DD: MetroMile JUST went public - here is why I'm investing in this InsureTech DISRUPTOR the market is sleeping on
|
First of all, this is not financial advice, you should always do your own DD before listening to internet strangers - but you already know that.
Second, the majority of this information can be found and validated in the MetroMile investor presentation here: [https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf](https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf)
Third, this is my first DD so go easy. Estimated reading time 12 minutes.
# Ticker Info/Position
Ticker: $MILE (formally $INAQ who were the SPAC)
Stock Price as of 15th Feb: $17.29
Current Mkt Cap: [projected a $1.3b](https://www.globenewswire.com/news-release/2020/11/24/2132624/0/en/Metromile-a-Leading-Digital-Insurance-Platform-to-Become-Public-Company.html) \- they only just went public and I think their previous 570m cap was from INAQ thus incorrectly reported.
TLDR at the very bottom. My position is 76 shares @ $18.26. It's all I have spare right now as all my other long funds are tied up in BB and NIO, but plan to load up more at the end of the month.
# Notable Investors and Ownership
* A "Shark Tank" has collectively invested $160m, including *Social Capital,* *Miller Value,* *Clearbridge,* *Hudson Structured,* *Mark Cuban,* *and* *New Enterprise Associates*
* Mark Cuban (part of the "shark tank")
* Chamath Palihapitiya (Social Capital, part of the "shark tank")
* Ryan Graves / Saltwater (ex Uber VP of Global Ops, just invested $50m)
# Who are MetroMile?
Quick explanation: MetroMile are a digital pay-per-mile insurance company that are starting to massively disrupt the market with a strong focus on AI, machine learning and user experience.
**Longer description from MM themselves:**
>Metromile is a leading pay-per-mile car insurance company in the U.S. Recognized by Forrester as a top insurance carrier in user experience, it is creating a loyal community of drivers with personalized insurance that is customized to each driver to be more affordable. Powered by machine learning and customer-centric design, Metromile is at the forefront of disrupting a more than $250 billion personal auto insurance industry that has gone unchanged for decades. Through Metromile Enterprise, our software-as-a-service business group, we license our proprietary artificial intelligence claims platform to automate claims, reduce losses associated with fraud, and unlock the productivity of insurance carriers’ employees so they can work on higher-impact experiences.
>
>We’re a diverse team that combines Silicon Valley’s best technologists with veterans from Fortune 500 insurers and financial service institutions. This approach ensures that we’re as equally focused on loss ratios, unit economics and profitability as on customer experience and technology innovation.
**Market disrupting InsureTech, driven by AI, machine learning and a strong focus on transparency and user experience - why does that sound familiar?**
That's right. When life gives you lemons, you make a disruptive AI based home/rental insurance company called LEMONADE that has blasted off to $163 a share. And when life gives you Lemonade, you take that model and apply it to the pay-per-mile car insurance market.
# "Buffet had Geico. I choose MetroMile" - Chamath Palihapitiya
Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
# Product Highlights
* Cancel your coverage any time
* All measured and tracked through a innovative mobile app and dongle (note, this dongle also aids in the recovery of stolen vehicles - they claim they have a 92% stolen vehicle recovery rate)
* The app/dongle also monitors your car's health (engine issues etc) and can help avoid parking tickets with the street sweep feature
* You’ll never have to worry about “going over” on your miles – all miles over 250 (or 150 for New Jersey drivers) in one day are free
* Flexible coverage options (comprehensive, collision etc)
* They state the average customer saves $741/year, if you drive less than 2,500 miles a year (like I do) you would average a saving of $947, that is HUGE.
* Sophisticated AI driven claim system makes filing and dealing with a claim a piece of cake, all achievable through the app
* Try before you buy - their FREE Ride Along app analyses your driving and allows you to calculate what you could save and then convert into a real customer, they claim 11% of abandoned quotes online then go onto try Ride Along. The app in general has a 25% referral rate and a 20% conversion rate which is HUGE.
* Their tech allows enhanced detection of fraudulent claims which lead to a +10% improvement to their contribution margin: Algorithmic Accident Reconstruction replaces manual investigation, More potential fraud cases identified, More potential cases successfully investigated, More confirmed fraud
# The Numbers
* The U.S. auto insurance market is worth **$250B**, globally $700B
* No U.S. operator has more than 20% market share
* They have incredibly loyal customers, with **industry leading 1 year retention** of 63.1% (vs Lemonade's 62%, Roots 33.2%)
* They **industry lead** in renewal loss ratio, loss ratio, fraud detection and annualised premium metrics
* Recent investment and the IPO means they have an est. **$294m CASH to pursue growth**
* Their contribution margin has increased **EVERY YEAR** for 5 years, from - 25% in 2016 to +13% in H1 2020
* Their loss ratio has decreased **EVERY YEAR** for 5 years, from 101% in 2016 to an industry leading 59% in H1 2020
* $MILE have spent the last 8 years developing and fine tuning their technology and infrastructure, they are now firmly in **growth and profit mode** forecasting to hit **profitability by Q2 2022**.
Here's what that operating profit forecast looks like:
|2018|2019|2020|2021|2022|2023|2024|
|:-|:-|:-|:-|:-|:-|:-|
|\-41.2m|\-42.8m|\-24.8m|\-20.7m|\+3.1m|\+87.1m|\+225.0m|
*(if this is tricky to read on mobile, they are forecasting hitting +$3.1m in 2022 and then rocketing to +$87m in 2023 and +$225m in 2024)*
# How good are the team behind it?
Full disclosure, the below are all excerpts taken from [MetroMile's website](https://www.metromile.com/about-us/) and not my words, but they looks impressive.
**CEO Dan Preston:**
>*Joined Metromile in 2013 as Chief Technology Officer before becoming Chief Executive Officer in 2014. Under his leadership, Metromile has experienced significant policy, premium and employee growth. The company has also established itself as the industry leader in leveraging artificial intelligence and machine learning to improve the customer experience and lower loss ratios. Metromile has been voted a Best Place to Work by Glassdoor and the Phoenix Business Journal.*
>
>*Prior to joining Metromile, Dan was the co-founder and CTO of AisleBuyer, a mobile retail innovator that was acquired by Intuit in April 2012. He has published several research papers on machine learning with applications such as astrophysics, remote sensing, and computer vision.Dan holds a master's degree in Computer Science with a specialization in Artificial Intelligence, Machine Learning, and Computer Vision from Stanford University and a bachelor's degree in Computer Science from Brandeis University, where he received the Michtom Prize for Outstanding Achievement in Computer Science and graduated Summa Cum Laude with highest honors in Computer Science.*
**CTO Paw Andersen:**
>*A technologist with over 20 years of engineering leadership experience. He was most notably a senior leader of engineering in Uber's Advanced Technology group, where he grew his team from 27 to 700. Beyond ride-sharing and autonomous vehicles, he's been on the front lines of technical challenges in several sectors, including geographic information systems, fintech and e-commerce, ranging from small startups to large, established companies.*
**And then Founder & Chairman David Friedberg, the below is what I have accumulated from researching Wiki, the NY Post and Linkedin:**
>*Former Google employee. The thing that stands out to me is that he was the FOUNDER and CEO of the Climate Corporation for 9 years, which he successfully lead to a $1B sale to Monsanto in 2013. The Climate Corporation (now known as Climate Field View) is a digital agriculture company that examines weather, soil and field data to help farmers determine potential yield-limiting factors in their fields. From nitrogen levels in soil from historical weather, to satellite imagery mapping out crop health & vegetation maps, it uses data science to make farming better. This guys knows his shit and has a wealth of experience in big data.*
# Expansion, Opportunity and Catalysts
* They are currently operational in **just 8 of 50 U.S. states**; Washington, California, Oregon, Illinois, Arizona, Virginia, Pennsylvania and New Jersey.
* They plan to be live in 21 states in 2021 and **49 in 2022**
* Those current 8 states represent 45m potential drivers that can save with MetroMile, that number jumps to 143m drivers in 2022 (with 49 states) representing **$160B in potential premiums** (seriously, if you look at one thing in that investor deck I linked, jump to slide 30)
* The IPO transaction has provided an estimated **$294 Million in cash** to pursue growth opportunities
* They are looking to **expand and cross sell into other verticals** such as; Homeowners, Renters, Pet, Warranties & Maintenance through 2021-2022
* They are **licensing their leading AI claims platform** and cannot be just viewed as an auto insurance provider (more on that below)
* They are integrating and partnering with car manufacturers to refer customers, 2 are already signed up and **one of them is** [**FORD**](https://www.fintechfutures.com/techwire/metromile-and-ford-team-up-to-bring-highly-personalized-car-insurance-to-ford-owners/), they expect **8 by 2022** so keep an eye out for announcements
* There are ambitions to go global
* In December they provided a Q3 earnings update and 2020 forecast exceeding expectations ([Source](https://www.globenewswire.com/news-release/2020/12/16/2146566/0/en/Metromile-Raises-Policies-in-Force-and-Contribution-Profit-Expectations-for-Full-Year-2020-Provides-Update-on-Third-Quarter-2020-Financial-Metrics-and-Reaffirms-Outlook-for-2021-20.html)), we should be due Q4/2020 final numbers soon
# NOT just an insurance provider - FinTech LICENSING Growth
This one is important and needs attention - you know that leading, sophisticated, claims AI platform they've built? They are now LICENSING that through their [MetroMile ENTERPRISE](https://enterprise.metromile.com/) arm of the business, and its **built to work on top of standard claims management software**.
* This licensing delivered $5.6m additional revenue in 2020 and is forecast to increase significantly YoY ($12.4m in 2021 > $21.7m 2022 > $33.7m in 2023 > $48.3m in 2024) - you cannot just look at $MILE as an insurance disruptor, they are also **a** ***software/technology company***
* It seems they are not allowed to name everyone who is using their Enterprise tech at this time but do list Tokio Marine, a "Top 10 US Carrier" and a "US Carrier". They say they have 4 deployed, 22 planned by 2022 and 46 in the pipeline.
# What about the competition?
On a technology level, the closest form of competition I can see is [Root](https://www.joinroot.com/test-drive/), however their USP is that they quote you based on your driving behaviour. It utilises machine learning and an app that analyses your driving before pricing you up. MetroMile does the opposite, it does not charge you at all based on your behaviour, it is per mile.
Lemonade could also be classed as a competitor but they focus on the home/rental vertical.
On a business model level, Mile Wise (from All State) is the closest, they are also using a pay-per-mile model but lack the same depth of tech behind them compared to $MILE from what I can see.
# The world and our habits have changed, $MILE are poised to grab that by the horns
* A pandemic riddled world has seen hundreds of millions of people driving less and burning cash on insured vehicles sitting on their drive ways unused - myself included
* In the UK, at the height of the pandemic last year only 22% of cars were on the road ([Source](https://www.gocompare.com/motoring/reports-statistics/coronavirus-travel-report/)), that's a whopping 78% decrease and that is not even taking into account that the 22% on the road were likely driving less than usual *(YES...I understand $MILE is a U.S. company, unfortunately I could not find any U.S. equivalent data but it's still a relevant stat no doubt replicated to varying degrees throughout the world)*
* A survey shows after the pandemic **25% of drivers** plan to drive less: [Source](https://www.thisismoney.co.uk/money/cars/article-8260957/A-fifth-motorists-claim-theyll-drive-lockdown.html) *(sorry, another UK source I know but I couldn't find similar for the U.S., this is a generalisation of the western world but again as above it will be replicated no doubt to varying degrees)*
* OK...so as I was typing I found this which shows **US mileage dropped by as much as 60%** during the height of the pandemic last year: [Source](https://www.npr.org/sections/coronavirus-live-updates/2020/05/06/851001762/the-pandemic-emptied-american-roads-but-driving-is-picking-back-up?t=1613224790884) \- the caveat is of course that mileage and car use will absolutely pick up as the pandemic ebbs and flows and eventually ends
* **22.7% of employed Americans** were working from home in September due to the pandemic and in management/professional occupations that number rockets to over 40%: [Source](https://www.bloomberg.com/news/articles/2020-10-05/americans-are-driving-less-than-before-pandemic-and-it-s-permanent)
* When the world emerges from this, office hours and behaviour will never be the same, working-from-home and hybrid "x days at home and x days in the office" will become the norm, the pandemic has forced companies and employees to prove they can work just fine from home - and that they have, in many cases exceeded expectations.
Before the pandemic was a thing there was STILL a clear need for this in the market, this was always going to be an appealing and great model, COVID19 has simply been a catalyst to bring $MILE to the forefront quicker. Ready to expand.
Do you really think all these people who have picked up recipe box subscriptions, online grocery shopping, at home spin/peloton classes and more will revert back to the old way pre-pandemic? Some may, but most will not. People like convenience and ease of use. New habits will stay.
# Cons/Watch Outs
* The move to hybrid or work-from-home models may not be adopted as much as we think post-pandemic - personally I don't think this will be an issue because 1) I just cannot see a world where businesses don't adapt to this, it ultimately saves them money and 2) this business model is not built on a pandemic, as I said COVID19 has simply been a catalyst to drive adoption and awareness.
* The insurance goliaths (i.e. Geico) develop or market their own pay-per-mile model (I am not based in the U.S. so any additional insight in the comments from you guys is welcome, let's make this a discussion) - I don't see this happening any time soon, at least, not to the same complexity that $MILE are achieving, it would require huge investment and development to build anything near what $MILE have but you can't rule Buffet/Geico out
* Someone like Lemonade expand into the motor/pay-per-mile sector
* Root create a pay-per-mile model (unlikely imo due to their entire business being based on quoting your behaviour but you cant rule it out)
* Targeting infrequent drivers is a bit of a niche however this can also be viewed as a positive as they are set to dominate said niche
* For whatever reason, they do not expand to as many states as quickly as they desire, I will not pretend to understand what potential red tape is there
* The forecasted profits are from their investor deck so they are of course going to big themselves up, regardless I like what I see
# Wrap Up/TLDR
***"Buffet had Geico. I choose MetroMile"*** \- Chamath Palihapitiya. Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
This is not a swing trade, this is not that P&D shit, this is a buy early, hold and ride the wave of a growing company built on great tech, a great team and a great business model. Here's your TLDR; read it properly and actually make a decision for yourself because I feel this is a sleeping giant just waiting to explode.
$INAQ's share price jumped from around $9 pre SPAC announcement in December to around $17 today. However since completing the merger on Wed 10th Feb 2020 and the ticker renaming to $MILE the price has barely moved, dipping a dollar or so and maintaining pre merger completion levels. I feel like the market are really sleeping on this and they are flying under the radar so I am getting in now before they reach their potential. I like the stock, I have a lot of confidence in it.
| 105 |
WillSpur
| 1,613,501,336 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/llamrw/mile_dd_metromile_just_went_public_here_is_why_im/
|
llamrw
|
gnsj0iu
|
I've been a customer for a few years. My rate was cut in half even with commuting from SF to East Bay every day.
Every interaction I've had with them from claims to lowering my rate has been stellar.
Their platform is amazing to use in a city too. Getting alerts before street sweeping, parking reminders, car diagnostics all in app all are so useful. Love this company and their product. Bought 300 shares.
| 6 |
YoungWing
| 1,613,586,523 |
$MILE DD: MetroMile JUST went public - here is why I'm investing in this InsureTech DISRUPTOR the market is sleeping on
|
First of all, this is not financial advice, you should always do your own DD before listening to internet strangers - but you already know that.
Second, the majority of this information can be found and validated in the MetroMile investor presentation here: [https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf](https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf)
Third, this is my first DD so go easy. Estimated reading time 12 minutes.
# Ticker Info/Position
Ticker: $MILE (formally $INAQ who were the SPAC)
Stock Price as of 15th Feb: $17.29
Current Mkt Cap: [projected a $1.3b](https://www.globenewswire.com/news-release/2020/11/24/2132624/0/en/Metromile-a-Leading-Digital-Insurance-Platform-to-Become-Public-Company.html) \- they only just went public and I think their previous 570m cap was from INAQ thus incorrectly reported.
TLDR at the very bottom. My position is 76 shares @ $18.26. It's all I have spare right now as all my other long funds are tied up in BB and NIO, but plan to load up more at the end of the month.
# Notable Investors and Ownership
* A "Shark Tank" has collectively invested $160m, including *Social Capital,* *Miller Value,* *Clearbridge,* *Hudson Structured,* *Mark Cuban,* *and* *New Enterprise Associates*
* Mark Cuban (part of the "shark tank")
* Chamath Palihapitiya (Social Capital, part of the "shark tank")
* Ryan Graves / Saltwater (ex Uber VP of Global Ops, just invested $50m)
# Who are MetroMile?
Quick explanation: MetroMile are a digital pay-per-mile insurance company that are starting to massively disrupt the market with a strong focus on AI, machine learning and user experience.
**Longer description from MM themselves:**
>Metromile is a leading pay-per-mile car insurance company in the U.S. Recognized by Forrester as a top insurance carrier in user experience, it is creating a loyal community of drivers with personalized insurance that is customized to each driver to be more affordable. Powered by machine learning and customer-centric design, Metromile is at the forefront of disrupting a more than $250 billion personal auto insurance industry that has gone unchanged for decades. Through Metromile Enterprise, our software-as-a-service business group, we license our proprietary artificial intelligence claims platform to automate claims, reduce losses associated with fraud, and unlock the productivity of insurance carriers’ employees so they can work on higher-impact experiences.
>
>We’re a diverse team that combines Silicon Valley’s best technologists with veterans from Fortune 500 insurers and financial service institutions. This approach ensures that we’re as equally focused on loss ratios, unit economics and profitability as on customer experience and technology innovation.
**Market disrupting InsureTech, driven by AI, machine learning and a strong focus on transparency and user experience - why does that sound familiar?**
That's right. When life gives you lemons, you make a disruptive AI based home/rental insurance company called LEMONADE that has blasted off to $163 a share. And when life gives you Lemonade, you take that model and apply it to the pay-per-mile car insurance market.
# "Buffet had Geico. I choose MetroMile" - Chamath Palihapitiya
Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
# Product Highlights
* Cancel your coverage any time
* All measured and tracked through a innovative mobile app and dongle (note, this dongle also aids in the recovery of stolen vehicles - they claim they have a 92% stolen vehicle recovery rate)
* The app/dongle also monitors your car's health (engine issues etc) and can help avoid parking tickets with the street sweep feature
* You’ll never have to worry about “going over” on your miles – all miles over 250 (or 150 for New Jersey drivers) in one day are free
* Flexible coverage options (comprehensive, collision etc)
* They state the average customer saves $741/year, if you drive less than 2,500 miles a year (like I do) you would average a saving of $947, that is HUGE.
* Sophisticated AI driven claim system makes filing and dealing with a claim a piece of cake, all achievable through the app
* Try before you buy - their FREE Ride Along app analyses your driving and allows you to calculate what you could save and then convert into a real customer, they claim 11% of abandoned quotes online then go onto try Ride Along. The app in general has a 25% referral rate and a 20% conversion rate which is HUGE.
* Their tech allows enhanced detection of fraudulent claims which lead to a +10% improvement to their contribution margin: Algorithmic Accident Reconstruction replaces manual investigation, More potential fraud cases identified, More potential cases successfully investigated, More confirmed fraud
# The Numbers
* The U.S. auto insurance market is worth **$250B**, globally $700B
* No U.S. operator has more than 20% market share
* They have incredibly loyal customers, with **industry leading 1 year retention** of 63.1% (vs Lemonade's 62%, Roots 33.2%)
* They **industry lead** in renewal loss ratio, loss ratio, fraud detection and annualised premium metrics
* Recent investment and the IPO means they have an est. **$294m CASH to pursue growth**
* Their contribution margin has increased **EVERY YEAR** for 5 years, from - 25% in 2016 to +13% in H1 2020
* Their loss ratio has decreased **EVERY YEAR** for 5 years, from 101% in 2016 to an industry leading 59% in H1 2020
* $MILE have spent the last 8 years developing and fine tuning their technology and infrastructure, they are now firmly in **growth and profit mode** forecasting to hit **profitability by Q2 2022**.
Here's what that operating profit forecast looks like:
|2018|2019|2020|2021|2022|2023|2024|
|:-|:-|:-|:-|:-|:-|:-|
|\-41.2m|\-42.8m|\-24.8m|\-20.7m|\+3.1m|\+87.1m|\+225.0m|
*(if this is tricky to read on mobile, they are forecasting hitting +$3.1m in 2022 and then rocketing to +$87m in 2023 and +$225m in 2024)*
# How good are the team behind it?
Full disclosure, the below are all excerpts taken from [MetroMile's website](https://www.metromile.com/about-us/) and not my words, but they looks impressive.
**CEO Dan Preston:**
>*Joined Metromile in 2013 as Chief Technology Officer before becoming Chief Executive Officer in 2014. Under his leadership, Metromile has experienced significant policy, premium and employee growth. The company has also established itself as the industry leader in leveraging artificial intelligence and machine learning to improve the customer experience and lower loss ratios. Metromile has been voted a Best Place to Work by Glassdoor and the Phoenix Business Journal.*
>
>*Prior to joining Metromile, Dan was the co-founder and CTO of AisleBuyer, a mobile retail innovator that was acquired by Intuit in April 2012. He has published several research papers on machine learning with applications such as astrophysics, remote sensing, and computer vision.Dan holds a master's degree in Computer Science with a specialization in Artificial Intelligence, Machine Learning, and Computer Vision from Stanford University and a bachelor's degree in Computer Science from Brandeis University, where he received the Michtom Prize for Outstanding Achievement in Computer Science and graduated Summa Cum Laude with highest honors in Computer Science.*
**CTO Paw Andersen:**
>*A technologist with over 20 years of engineering leadership experience. He was most notably a senior leader of engineering in Uber's Advanced Technology group, where he grew his team from 27 to 700. Beyond ride-sharing and autonomous vehicles, he's been on the front lines of technical challenges in several sectors, including geographic information systems, fintech and e-commerce, ranging from small startups to large, established companies.*
**And then Founder & Chairman David Friedberg, the below is what I have accumulated from researching Wiki, the NY Post and Linkedin:**
>*Former Google employee. The thing that stands out to me is that he was the FOUNDER and CEO of the Climate Corporation for 9 years, which he successfully lead to a $1B sale to Monsanto in 2013. The Climate Corporation (now known as Climate Field View) is a digital agriculture company that examines weather, soil and field data to help farmers determine potential yield-limiting factors in their fields. From nitrogen levels in soil from historical weather, to satellite imagery mapping out crop health & vegetation maps, it uses data science to make farming better. This guys knows his shit and has a wealth of experience in big data.*
# Expansion, Opportunity and Catalysts
* They are currently operational in **just 8 of 50 U.S. states**; Washington, California, Oregon, Illinois, Arizona, Virginia, Pennsylvania and New Jersey.
* They plan to be live in 21 states in 2021 and **49 in 2022**
* Those current 8 states represent 45m potential drivers that can save with MetroMile, that number jumps to 143m drivers in 2022 (with 49 states) representing **$160B in potential premiums** (seriously, if you look at one thing in that investor deck I linked, jump to slide 30)
* The IPO transaction has provided an estimated **$294 Million in cash** to pursue growth opportunities
* They are looking to **expand and cross sell into other verticals** such as; Homeowners, Renters, Pet, Warranties & Maintenance through 2021-2022
* They are **licensing their leading AI claims platform** and cannot be just viewed as an auto insurance provider (more on that below)
* They are integrating and partnering with car manufacturers to refer customers, 2 are already signed up and **one of them is** [**FORD**](https://www.fintechfutures.com/techwire/metromile-and-ford-team-up-to-bring-highly-personalized-car-insurance-to-ford-owners/), they expect **8 by 2022** so keep an eye out for announcements
* There are ambitions to go global
* In December they provided a Q3 earnings update and 2020 forecast exceeding expectations ([Source](https://www.globenewswire.com/news-release/2020/12/16/2146566/0/en/Metromile-Raises-Policies-in-Force-and-Contribution-Profit-Expectations-for-Full-Year-2020-Provides-Update-on-Third-Quarter-2020-Financial-Metrics-and-Reaffirms-Outlook-for-2021-20.html)), we should be due Q4/2020 final numbers soon
# NOT just an insurance provider - FinTech LICENSING Growth
This one is important and needs attention - you know that leading, sophisticated, claims AI platform they've built? They are now LICENSING that through their [MetroMile ENTERPRISE](https://enterprise.metromile.com/) arm of the business, and its **built to work on top of standard claims management software**.
* This licensing delivered $5.6m additional revenue in 2020 and is forecast to increase significantly YoY ($12.4m in 2021 > $21.7m 2022 > $33.7m in 2023 > $48.3m in 2024) - you cannot just look at $MILE as an insurance disruptor, they are also **a** ***software/technology company***
* It seems they are not allowed to name everyone who is using their Enterprise tech at this time but do list Tokio Marine, a "Top 10 US Carrier" and a "US Carrier". They say they have 4 deployed, 22 planned by 2022 and 46 in the pipeline.
# What about the competition?
On a technology level, the closest form of competition I can see is [Root](https://www.joinroot.com/test-drive/), however their USP is that they quote you based on your driving behaviour. It utilises machine learning and an app that analyses your driving before pricing you up. MetroMile does the opposite, it does not charge you at all based on your behaviour, it is per mile.
Lemonade could also be classed as a competitor but they focus on the home/rental vertical.
On a business model level, Mile Wise (from All State) is the closest, they are also using a pay-per-mile model but lack the same depth of tech behind them compared to $MILE from what I can see.
# The world and our habits have changed, $MILE are poised to grab that by the horns
* A pandemic riddled world has seen hundreds of millions of people driving less and burning cash on insured vehicles sitting on their drive ways unused - myself included
* In the UK, at the height of the pandemic last year only 22% of cars were on the road ([Source](https://www.gocompare.com/motoring/reports-statistics/coronavirus-travel-report/)), that's a whopping 78% decrease and that is not even taking into account that the 22% on the road were likely driving less than usual *(YES...I understand $MILE is a U.S. company, unfortunately I could not find any U.S. equivalent data but it's still a relevant stat no doubt replicated to varying degrees throughout the world)*
* A survey shows after the pandemic **25% of drivers** plan to drive less: [Source](https://www.thisismoney.co.uk/money/cars/article-8260957/A-fifth-motorists-claim-theyll-drive-lockdown.html) *(sorry, another UK source I know but I couldn't find similar for the U.S., this is a generalisation of the western world but again as above it will be replicated no doubt to varying degrees)*
* OK...so as I was typing I found this which shows **US mileage dropped by as much as 60%** during the height of the pandemic last year: [Source](https://www.npr.org/sections/coronavirus-live-updates/2020/05/06/851001762/the-pandemic-emptied-american-roads-but-driving-is-picking-back-up?t=1613224790884) \- the caveat is of course that mileage and car use will absolutely pick up as the pandemic ebbs and flows and eventually ends
* **22.7% of employed Americans** were working from home in September due to the pandemic and in management/professional occupations that number rockets to over 40%: [Source](https://www.bloomberg.com/news/articles/2020-10-05/americans-are-driving-less-than-before-pandemic-and-it-s-permanent)
* When the world emerges from this, office hours and behaviour will never be the same, working-from-home and hybrid "x days at home and x days in the office" will become the norm, the pandemic has forced companies and employees to prove they can work just fine from home - and that they have, in many cases exceeded expectations.
Before the pandemic was a thing there was STILL a clear need for this in the market, this was always going to be an appealing and great model, COVID19 has simply been a catalyst to bring $MILE to the forefront quicker. Ready to expand.
Do you really think all these people who have picked up recipe box subscriptions, online grocery shopping, at home spin/peloton classes and more will revert back to the old way pre-pandemic? Some may, but most will not. People like convenience and ease of use. New habits will stay.
# Cons/Watch Outs
* The move to hybrid or work-from-home models may not be adopted as much as we think post-pandemic - personally I don't think this will be an issue because 1) I just cannot see a world where businesses don't adapt to this, it ultimately saves them money and 2) this business model is not built on a pandemic, as I said COVID19 has simply been a catalyst to drive adoption and awareness.
* The insurance goliaths (i.e. Geico) develop or market their own pay-per-mile model (I am not based in the U.S. so any additional insight in the comments from you guys is welcome, let's make this a discussion) - I don't see this happening any time soon, at least, not to the same complexity that $MILE are achieving, it would require huge investment and development to build anything near what $MILE have but you can't rule Buffet/Geico out
* Someone like Lemonade expand into the motor/pay-per-mile sector
* Root create a pay-per-mile model (unlikely imo due to their entire business being based on quoting your behaviour but you cant rule it out)
* Targeting infrequent drivers is a bit of a niche however this can also be viewed as a positive as they are set to dominate said niche
* For whatever reason, they do not expand to as many states as quickly as they desire, I will not pretend to understand what potential red tape is there
* The forecasted profits are from their investor deck so they are of course going to big themselves up, regardless I like what I see
# Wrap Up/TLDR
***"Buffet had Geico. I choose MetroMile"*** \- Chamath Palihapitiya. Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
This is not a swing trade, this is not that P&D shit, this is a buy early, hold and ride the wave of a growing company built on great tech, a great team and a great business model. Here's your TLDR; read it properly and actually make a decision for yourself because I feel this is a sleeping giant just waiting to explode.
$INAQ's share price jumped from around $9 pre SPAC announcement in December to around $17 today. However since completing the merger on Wed 10th Feb 2020 and the ticker renaming to $MILE the price has barely moved, dipping a dollar or so and maintaining pre merger completion levels. I feel like the market are really sleeping on this and they are flying under the radar so I am getting in now before they reach their potential. I like the stock, I have a lot of confidence in it.
| 105 |
WillSpur
| 1,613,501,336 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/llamrw/mile_dd_metromile_just_went_public_here_is_why_im/
|
llamrw
|
gnq5532
|
My biggest problem with them is that their target market is people that don't drive often, but for some stupid reason they require you to have a transmitter that is constantly transmitting even when you're not driving so it kills your battery. I drive my car about once every two weeks, and even a new battery doesn't last that long with their crappy dongle. Plus, it's large so my knee keeps knocking it loose. They charge you $25 for that.
| 6 |
Dismal_Storage
| 1,613,532,894 |
$MILE DD: MetroMile JUST went public - here is why I'm investing in this InsureTech DISRUPTOR the market is sleeping on
|
First of all, this is not financial advice, you should always do your own DD before listening to internet strangers - but you already know that.
Second, the majority of this information can be found and validated in the MetroMile investor presentation here: [https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf](https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf)
Third, this is my first DD so go easy. Estimated reading time 12 minutes.
# Ticker Info/Position
Ticker: $MILE (formally $INAQ who were the SPAC)
Stock Price as of 15th Feb: $17.29
Current Mkt Cap: [projected a $1.3b](https://www.globenewswire.com/news-release/2020/11/24/2132624/0/en/Metromile-a-Leading-Digital-Insurance-Platform-to-Become-Public-Company.html) \- they only just went public and I think their previous 570m cap was from INAQ thus incorrectly reported.
TLDR at the very bottom. My position is 76 shares @ $18.26. It's all I have spare right now as all my other long funds are tied up in BB and NIO, but plan to load up more at the end of the month.
# Notable Investors and Ownership
* A "Shark Tank" has collectively invested $160m, including *Social Capital,* *Miller Value,* *Clearbridge,* *Hudson Structured,* *Mark Cuban,* *and* *New Enterprise Associates*
* Mark Cuban (part of the "shark tank")
* Chamath Palihapitiya (Social Capital, part of the "shark tank")
* Ryan Graves / Saltwater (ex Uber VP of Global Ops, just invested $50m)
# Who are MetroMile?
Quick explanation: MetroMile are a digital pay-per-mile insurance company that are starting to massively disrupt the market with a strong focus on AI, machine learning and user experience.
**Longer description from MM themselves:**
>Metromile is a leading pay-per-mile car insurance company in the U.S. Recognized by Forrester as a top insurance carrier in user experience, it is creating a loyal community of drivers with personalized insurance that is customized to each driver to be more affordable. Powered by machine learning and customer-centric design, Metromile is at the forefront of disrupting a more than $250 billion personal auto insurance industry that has gone unchanged for decades. Through Metromile Enterprise, our software-as-a-service business group, we license our proprietary artificial intelligence claims platform to automate claims, reduce losses associated with fraud, and unlock the productivity of insurance carriers’ employees so they can work on higher-impact experiences.
>
>We’re a diverse team that combines Silicon Valley’s best technologists with veterans from Fortune 500 insurers and financial service institutions. This approach ensures that we’re as equally focused on loss ratios, unit economics and profitability as on customer experience and technology innovation.
**Market disrupting InsureTech, driven by AI, machine learning and a strong focus on transparency and user experience - why does that sound familiar?**
That's right. When life gives you lemons, you make a disruptive AI based home/rental insurance company called LEMONADE that has blasted off to $163 a share. And when life gives you Lemonade, you take that model and apply it to the pay-per-mile car insurance market.
# "Buffet had Geico. I choose MetroMile" - Chamath Palihapitiya
Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
# Product Highlights
* Cancel your coverage any time
* All measured and tracked through a innovative mobile app and dongle (note, this dongle also aids in the recovery of stolen vehicles - they claim they have a 92% stolen vehicle recovery rate)
* The app/dongle also monitors your car's health (engine issues etc) and can help avoid parking tickets with the street sweep feature
* You’ll never have to worry about “going over” on your miles – all miles over 250 (or 150 for New Jersey drivers) in one day are free
* Flexible coverage options (comprehensive, collision etc)
* They state the average customer saves $741/year, if you drive less than 2,500 miles a year (like I do) you would average a saving of $947, that is HUGE.
* Sophisticated AI driven claim system makes filing and dealing with a claim a piece of cake, all achievable through the app
* Try before you buy - their FREE Ride Along app analyses your driving and allows you to calculate what you could save and then convert into a real customer, they claim 11% of abandoned quotes online then go onto try Ride Along. The app in general has a 25% referral rate and a 20% conversion rate which is HUGE.
* Their tech allows enhanced detection of fraudulent claims which lead to a +10% improvement to their contribution margin: Algorithmic Accident Reconstruction replaces manual investigation, More potential fraud cases identified, More potential cases successfully investigated, More confirmed fraud
# The Numbers
* The U.S. auto insurance market is worth **$250B**, globally $700B
* No U.S. operator has more than 20% market share
* They have incredibly loyal customers, with **industry leading 1 year retention** of 63.1% (vs Lemonade's 62%, Roots 33.2%)
* They **industry lead** in renewal loss ratio, loss ratio, fraud detection and annualised premium metrics
* Recent investment and the IPO means they have an est. **$294m CASH to pursue growth**
* Their contribution margin has increased **EVERY YEAR** for 5 years, from - 25% in 2016 to +13% in H1 2020
* Their loss ratio has decreased **EVERY YEAR** for 5 years, from 101% in 2016 to an industry leading 59% in H1 2020
* $MILE have spent the last 8 years developing and fine tuning their technology and infrastructure, they are now firmly in **growth and profit mode** forecasting to hit **profitability by Q2 2022**.
Here's what that operating profit forecast looks like:
|2018|2019|2020|2021|2022|2023|2024|
|:-|:-|:-|:-|:-|:-|:-|
|\-41.2m|\-42.8m|\-24.8m|\-20.7m|\+3.1m|\+87.1m|\+225.0m|
*(if this is tricky to read on mobile, they are forecasting hitting +$3.1m in 2022 and then rocketing to +$87m in 2023 and +$225m in 2024)*
# How good are the team behind it?
Full disclosure, the below are all excerpts taken from [MetroMile's website](https://www.metromile.com/about-us/) and not my words, but they looks impressive.
**CEO Dan Preston:**
>*Joined Metromile in 2013 as Chief Technology Officer before becoming Chief Executive Officer in 2014. Under his leadership, Metromile has experienced significant policy, premium and employee growth. The company has also established itself as the industry leader in leveraging artificial intelligence and machine learning to improve the customer experience and lower loss ratios. Metromile has been voted a Best Place to Work by Glassdoor and the Phoenix Business Journal.*
>
>*Prior to joining Metromile, Dan was the co-founder and CTO of AisleBuyer, a mobile retail innovator that was acquired by Intuit in April 2012. He has published several research papers on machine learning with applications such as astrophysics, remote sensing, and computer vision.Dan holds a master's degree in Computer Science with a specialization in Artificial Intelligence, Machine Learning, and Computer Vision from Stanford University and a bachelor's degree in Computer Science from Brandeis University, where he received the Michtom Prize for Outstanding Achievement in Computer Science and graduated Summa Cum Laude with highest honors in Computer Science.*
**CTO Paw Andersen:**
>*A technologist with over 20 years of engineering leadership experience. He was most notably a senior leader of engineering in Uber's Advanced Technology group, where he grew his team from 27 to 700. Beyond ride-sharing and autonomous vehicles, he's been on the front lines of technical challenges in several sectors, including geographic information systems, fintech and e-commerce, ranging from small startups to large, established companies.*
**And then Founder & Chairman David Friedberg, the below is what I have accumulated from researching Wiki, the NY Post and Linkedin:**
>*Former Google employee. The thing that stands out to me is that he was the FOUNDER and CEO of the Climate Corporation for 9 years, which he successfully lead to a $1B sale to Monsanto in 2013. The Climate Corporation (now known as Climate Field View) is a digital agriculture company that examines weather, soil and field data to help farmers determine potential yield-limiting factors in their fields. From nitrogen levels in soil from historical weather, to satellite imagery mapping out crop health & vegetation maps, it uses data science to make farming better. This guys knows his shit and has a wealth of experience in big data.*
# Expansion, Opportunity and Catalysts
* They are currently operational in **just 8 of 50 U.S. states**; Washington, California, Oregon, Illinois, Arizona, Virginia, Pennsylvania and New Jersey.
* They plan to be live in 21 states in 2021 and **49 in 2022**
* Those current 8 states represent 45m potential drivers that can save with MetroMile, that number jumps to 143m drivers in 2022 (with 49 states) representing **$160B in potential premiums** (seriously, if you look at one thing in that investor deck I linked, jump to slide 30)
* The IPO transaction has provided an estimated **$294 Million in cash** to pursue growth opportunities
* They are looking to **expand and cross sell into other verticals** such as; Homeowners, Renters, Pet, Warranties & Maintenance through 2021-2022
* They are **licensing their leading AI claims platform** and cannot be just viewed as an auto insurance provider (more on that below)
* They are integrating and partnering with car manufacturers to refer customers, 2 are already signed up and **one of them is** [**FORD**](https://www.fintechfutures.com/techwire/metromile-and-ford-team-up-to-bring-highly-personalized-car-insurance-to-ford-owners/), they expect **8 by 2022** so keep an eye out for announcements
* There are ambitions to go global
* In December they provided a Q3 earnings update and 2020 forecast exceeding expectations ([Source](https://www.globenewswire.com/news-release/2020/12/16/2146566/0/en/Metromile-Raises-Policies-in-Force-and-Contribution-Profit-Expectations-for-Full-Year-2020-Provides-Update-on-Third-Quarter-2020-Financial-Metrics-and-Reaffirms-Outlook-for-2021-20.html)), we should be due Q4/2020 final numbers soon
# NOT just an insurance provider - FinTech LICENSING Growth
This one is important and needs attention - you know that leading, sophisticated, claims AI platform they've built? They are now LICENSING that through their [MetroMile ENTERPRISE](https://enterprise.metromile.com/) arm of the business, and its **built to work on top of standard claims management software**.
* This licensing delivered $5.6m additional revenue in 2020 and is forecast to increase significantly YoY ($12.4m in 2021 > $21.7m 2022 > $33.7m in 2023 > $48.3m in 2024) - you cannot just look at $MILE as an insurance disruptor, they are also **a** ***software/technology company***
* It seems they are not allowed to name everyone who is using their Enterprise tech at this time but do list Tokio Marine, a "Top 10 US Carrier" and a "US Carrier". They say they have 4 deployed, 22 planned by 2022 and 46 in the pipeline.
# What about the competition?
On a technology level, the closest form of competition I can see is [Root](https://www.joinroot.com/test-drive/), however their USP is that they quote you based on your driving behaviour. It utilises machine learning and an app that analyses your driving before pricing you up. MetroMile does the opposite, it does not charge you at all based on your behaviour, it is per mile.
Lemonade could also be classed as a competitor but they focus on the home/rental vertical.
On a business model level, Mile Wise (from All State) is the closest, they are also using a pay-per-mile model but lack the same depth of tech behind them compared to $MILE from what I can see.
# The world and our habits have changed, $MILE are poised to grab that by the horns
* A pandemic riddled world has seen hundreds of millions of people driving less and burning cash on insured vehicles sitting on their drive ways unused - myself included
* In the UK, at the height of the pandemic last year only 22% of cars were on the road ([Source](https://www.gocompare.com/motoring/reports-statistics/coronavirus-travel-report/)), that's a whopping 78% decrease and that is not even taking into account that the 22% on the road were likely driving less than usual *(YES...I understand $MILE is a U.S. company, unfortunately I could not find any U.S. equivalent data but it's still a relevant stat no doubt replicated to varying degrees throughout the world)*
* A survey shows after the pandemic **25% of drivers** plan to drive less: [Source](https://www.thisismoney.co.uk/money/cars/article-8260957/A-fifth-motorists-claim-theyll-drive-lockdown.html) *(sorry, another UK source I know but I couldn't find similar for the U.S., this is a generalisation of the western world but again as above it will be replicated no doubt to varying degrees)*
* OK...so as I was typing I found this which shows **US mileage dropped by as much as 60%** during the height of the pandemic last year: [Source](https://www.npr.org/sections/coronavirus-live-updates/2020/05/06/851001762/the-pandemic-emptied-american-roads-but-driving-is-picking-back-up?t=1613224790884) \- the caveat is of course that mileage and car use will absolutely pick up as the pandemic ebbs and flows and eventually ends
* **22.7% of employed Americans** were working from home in September due to the pandemic and in management/professional occupations that number rockets to over 40%: [Source](https://www.bloomberg.com/news/articles/2020-10-05/americans-are-driving-less-than-before-pandemic-and-it-s-permanent)
* When the world emerges from this, office hours and behaviour will never be the same, working-from-home and hybrid "x days at home and x days in the office" will become the norm, the pandemic has forced companies and employees to prove they can work just fine from home - and that they have, in many cases exceeded expectations.
Before the pandemic was a thing there was STILL a clear need for this in the market, this was always going to be an appealing and great model, COVID19 has simply been a catalyst to bring $MILE to the forefront quicker. Ready to expand.
Do you really think all these people who have picked up recipe box subscriptions, online grocery shopping, at home spin/peloton classes and more will revert back to the old way pre-pandemic? Some may, but most will not. People like convenience and ease of use. New habits will stay.
# Cons/Watch Outs
* The move to hybrid or work-from-home models may not be adopted as much as we think post-pandemic - personally I don't think this will be an issue because 1) I just cannot see a world where businesses don't adapt to this, it ultimately saves them money and 2) this business model is not built on a pandemic, as I said COVID19 has simply been a catalyst to drive adoption and awareness.
* The insurance goliaths (i.e. Geico) develop or market their own pay-per-mile model (I am not based in the U.S. so any additional insight in the comments from you guys is welcome, let's make this a discussion) - I don't see this happening any time soon, at least, not to the same complexity that $MILE are achieving, it would require huge investment and development to build anything near what $MILE have but you can't rule Buffet/Geico out
* Someone like Lemonade expand into the motor/pay-per-mile sector
* Root create a pay-per-mile model (unlikely imo due to their entire business being based on quoting your behaviour but you cant rule it out)
* Targeting infrequent drivers is a bit of a niche however this can also be viewed as a positive as they are set to dominate said niche
* For whatever reason, they do not expand to as many states as quickly as they desire, I will not pretend to understand what potential red tape is there
* The forecasted profits are from their investor deck so they are of course going to big themselves up, regardless I like what I see
# Wrap Up/TLDR
***"Buffet had Geico. I choose MetroMile"*** \- Chamath Palihapitiya. Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
This is not a swing trade, this is not that P&D shit, this is a buy early, hold and ride the wave of a growing company built on great tech, a great team and a great business model. Here's your TLDR; read it properly and actually make a decision for yourself because I feel this is a sleeping giant just waiting to explode.
$INAQ's share price jumped from around $9 pre SPAC announcement in December to around $17 today. However since completing the merger on Wed 10th Feb 2020 and the ticker renaming to $MILE the price has barely moved, dipping a dollar or so and maintaining pre merger completion levels. I feel like the market are really sleeping on this and they are flying under the radar so I am getting in now before they reach their potential. I like the stock, I have a lot of confidence in it.
| 105 |
WillSpur
| 1,613,501,336 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/llamrw/mile_dd_metromile_just_went_public_here_is_why_im/
|
llamrw
|
gnplcmk
|
This company has bad reviews everywhere. Concept and idea looks great. Different story with the business implementation
| 5 |
FooNcs
| 1,613,522,502 |
$MILE DD: MetroMile JUST went public - here is why I'm investing in this InsureTech DISRUPTOR the market is sleeping on
|
First of all, this is not financial advice, you should always do your own DD before listening to internet strangers - but you already know that.
Second, the majority of this information can be found and validated in the MetroMile investor presentation here: [https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf](https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf)
Third, this is my first DD so go easy. Estimated reading time 12 minutes.
# Ticker Info/Position
Ticker: $MILE (formally $INAQ who were the SPAC)
Stock Price as of 15th Feb: $17.29
Current Mkt Cap: [projected a $1.3b](https://www.globenewswire.com/news-release/2020/11/24/2132624/0/en/Metromile-a-Leading-Digital-Insurance-Platform-to-Become-Public-Company.html) \- they only just went public and I think their previous 570m cap was from INAQ thus incorrectly reported.
TLDR at the very bottom. My position is 76 shares @ $18.26. It's all I have spare right now as all my other long funds are tied up in BB and NIO, but plan to load up more at the end of the month.
# Notable Investors and Ownership
* A "Shark Tank" has collectively invested $160m, including *Social Capital,* *Miller Value,* *Clearbridge,* *Hudson Structured,* *Mark Cuban,* *and* *New Enterprise Associates*
* Mark Cuban (part of the "shark tank")
* Chamath Palihapitiya (Social Capital, part of the "shark tank")
* Ryan Graves / Saltwater (ex Uber VP of Global Ops, just invested $50m)
# Who are MetroMile?
Quick explanation: MetroMile are a digital pay-per-mile insurance company that are starting to massively disrupt the market with a strong focus on AI, machine learning and user experience.
**Longer description from MM themselves:**
>Metromile is a leading pay-per-mile car insurance company in the U.S. Recognized by Forrester as a top insurance carrier in user experience, it is creating a loyal community of drivers with personalized insurance that is customized to each driver to be more affordable. Powered by machine learning and customer-centric design, Metromile is at the forefront of disrupting a more than $250 billion personal auto insurance industry that has gone unchanged for decades. Through Metromile Enterprise, our software-as-a-service business group, we license our proprietary artificial intelligence claims platform to automate claims, reduce losses associated with fraud, and unlock the productivity of insurance carriers’ employees so they can work on higher-impact experiences.
>
>We’re a diverse team that combines Silicon Valley’s best technologists with veterans from Fortune 500 insurers and financial service institutions. This approach ensures that we’re as equally focused on loss ratios, unit economics and profitability as on customer experience and technology innovation.
**Market disrupting InsureTech, driven by AI, machine learning and a strong focus on transparency and user experience - why does that sound familiar?**
That's right. When life gives you lemons, you make a disruptive AI based home/rental insurance company called LEMONADE that has blasted off to $163 a share. And when life gives you Lemonade, you take that model and apply it to the pay-per-mile car insurance market.
# "Buffet had Geico. I choose MetroMile" - Chamath Palihapitiya
Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
# Product Highlights
* Cancel your coverage any time
* All measured and tracked through a innovative mobile app and dongle (note, this dongle also aids in the recovery of stolen vehicles - they claim they have a 92% stolen vehicle recovery rate)
* The app/dongle also monitors your car's health (engine issues etc) and can help avoid parking tickets with the street sweep feature
* You’ll never have to worry about “going over” on your miles – all miles over 250 (or 150 for New Jersey drivers) in one day are free
* Flexible coverage options (comprehensive, collision etc)
* They state the average customer saves $741/year, if you drive less than 2,500 miles a year (like I do) you would average a saving of $947, that is HUGE.
* Sophisticated AI driven claim system makes filing and dealing with a claim a piece of cake, all achievable through the app
* Try before you buy - their FREE Ride Along app analyses your driving and allows you to calculate what you could save and then convert into a real customer, they claim 11% of abandoned quotes online then go onto try Ride Along. The app in general has a 25% referral rate and a 20% conversion rate which is HUGE.
* Their tech allows enhanced detection of fraudulent claims which lead to a +10% improvement to their contribution margin: Algorithmic Accident Reconstruction replaces manual investigation, More potential fraud cases identified, More potential cases successfully investigated, More confirmed fraud
# The Numbers
* The U.S. auto insurance market is worth **$250B**, globally $700B
* No U.S. operator has more than 20% market share
* They have incredibly loyal customers, with **industry leading 1 year retention** of 63.1% (vs Lemonade's 62%, Roots 33.2%)
* They **industry lead** in renewal loss ratio, loss ratio, fraud detection and annualised premium metrics
* Recent investment and the IPO means they have an est. **$294m CASH to pursue growth**
* Their contribution margin has increased **EVERY YEAR** for 5 years, from - 25% in 2016 to +13% in H1 2020
* Their loss ratio has decreased **EVERY YEAR** for 5 years, from 101% in 2016 to an industry leading 59% in H1 2020
* $MILE have spent the last 8 years developing and fine tuning their technology and infrastructure, they are now firmly in **growth and profit mode** forecasting to hit **profitability by Q2 2022**.
Here's what that operating profit forecast looks like:
|2018|2019|2020|2021|2022|2023|2024|
|:-|:-|:-|:-|:-|:-|:-|
|\-41.2m|\-42.8m|\-24.8m|\-20.7m|\+3.1m|\+87.1m|\+225.0m|
*(if this is tricky to read on mobile, they are forecasting hitting +$3.1m in 2022 and then rocketing to +$87m in 2023 and +$225m in 2024)*
# How good are the team behind it?
Full disclosure, the below are all excerpts taken from [MetroMile's website](https://www.metromile.com/about-us/) and not my words, but they looks impressive.
**CEO Dan Preston:**
>*Joined Metromile in 2013 as Chief Technology Officer before becoming Chief Executive Officer in 2014. Under his leadership, Metromile has experienced significant policy, premium and employee growth. The company has also established itself as the industry leader in leveraging artificial intelligence and machine learning to improve the customer experience and lower loss ratios. Metromile has been voted a Best Place to Work by Glassdoor and the Phoenix Business Journal.*
>
>*Prior to joining Metromile, Dan was the co-founder and CTO of AisleBuyer, a mobile retail innovator that was acquired by Intuit in April 2012. He has published several research papers on machine learning with applications such as astrophysics, remote sensing, and computer vision.Dan holds a master's degree in Computer Science with a specialization in Artificial Intelligence, Machine Learning, and Computer Vision from Stanford University and a bachelor's degree in Computer Science from Brandeis University, where he received the Michtom Prize for Outstanding Achievement in Computer Science and graduated Summa Cum Laude with highest honors in Computer Science.*
**CTO Paw Andersen:**
>*A technologist with over 20 years of engineering leadership experience. He was most notably a senior leader of engineering in Uber's Advanced Technology group, where he grew his team from 27 to 700. Beyond ride-sharing and autonomous vehicles, he's been on the front lines of technical challenges in several sectors, including geographic information systems, fintech and e-commerce, ranging from small startups to large, established companies.*
**And then Founder & Chairman David Friedberg, the below is what I have accumulated from researching Wiki, the NY Post and Linkedin:**
>*Former Google employee. The thing that stands out to me is that he was the FOUNDER and CEO of the Climate Corporation for 9 years, which he successfully lead to a $1B sale to Monsanto in 2013. The Climate Corporation (now known as Climate Field View) is a digital agriculture company that examines weather, soil and field data to help farmers determine potential yield-limiting factors in their fields. From nitrogen levels in soil from historical weather, to satellite imagery mapping out crop health & vegetation maps, it uses data science to make farming better. This guys knows his shit and has a wealth of experience in big data.*
# Expansion, Opportunity and Catalysts
* They are currently operational in **just 8 of 50 U.S. states**; Washington, California, Oregon, Illinois, Arizona, Virginia, Pennsylvania and New Jersey.
* They plan to be live in 21 states in 2021 and **49 in 2022**
* Those current 8 states represent 45m potential drivers that can save with MetroMile, that number jumps to 143m drivers in 2022 (with 49 states) representing **$160B in potential premiums** (seriously, if you look at one thing in that investor deck I linked, jump to slide 30)
* The IPO transaction has provided an estimated **$294 Million in cash** to pursue growth opportunities
* They are looking to **expand and cross sell into other verticals** such as; Homeowners, Renters, Pet, Warranties & Maintenance through 2021-2022
* They are **licensing their leading AI claims platform** and cannot be just viewed as an auto insurance provider (more on that below)
* They are integrating and partnering with car manufacturers to refer customers, 2 are already signed up and **one of them is** [**FORD**](https://www.fintechfutures.com/techwire/metromile-and-ford-team-up-to-bring-highly-personalized-car-insurance-to-ford-owners/), they expect **8 by 2022** so keep an eye out for announcements
* There are ambitions to go global
* In December they provided a Q3 earnings update and 2020 forecast exceeding expectations ([Source](https://www.globenewswire.com/news-release/2020/12/16/2146566/0/en/Metromile-Raises-Policies-in-Force-and-Contribution-Profit-Expectations-for-Full-Year-2020-Provides-Update-on-Third-Quarter-2020-Financial-Metrics-and-Reaffirms-Outlook-for-2021-20.html)), we should be due Q4/2020 final numbers soon
# NOT just an insurance provider - FinTech LICENSING Growth
This one is important and needs attention - you know that leading, sophisticated, claims AI platform they've built? They are now LICENSING that through their [MetroMile ENTERPRISE](https://enterprise.metromile.com/) arm of the business, and its **built to work on top of standard claims management software**.
* This licensing delivered $5.6m additional revenue in 2020 and is forecast to increase significantly YoY ($12.4m in 2021 > $21.7m 2022 > $33.7m in 2023 > $48.3m in 2024) - you cannot just look at $MILE as an insurance disruptor, they are also **a** ***software/technology company***
* It seems they are not allowed to name everyone who is using their Enterprise tech at this time but do list Tokio Marine, a "Top 10 US Carrier" and a "US Carrier". They say they have 4 deployed, 22 planned by 2022 and 46 in the pipeline.
# What about the competition?
On a technology level, the closest form of competition I can see is [Root](https://www.joinroot.com/test-drive/), however their USP is that they quote you based on your driving behaviour. It utilises machine learning and an app that analyses your driving before pricing you up. MetroMile does the opposite, it does not charge you at all based on your behaviour, it is per mile.
Lemonade could also be classed as a competitor but they focus on the home/rental vertical.
On a business model level, Mile Wise (from All State) is the closest, they are also using a pay-per-mile model but lack the same depth of tech behind them compared to $MILE from what I can see.
# The world and our habits have changed, $MILE are poised to grab that by the horns
* A pandemic riddled world has seen hundreds of millions of people driving less and burning cash on insured vehicles sitting on their drive ways unused - myself included
* In the UK, at the height of the pandemic last year only 22% of cars were on the road ([Source](https://www.gocompare.com/motoring/reports-statistics/coronavirus-travel-report/)), that's a whopping 78% decrease and that is not even taking into account that the 22% on the road were likely driving less than usual *(YES...I understand $MILE is a U.S. company, unfortunately I could not find any U.S. equivalent data but it's still a relevant stat no doubt replicated to varying degrees throughout the world)*
* A survey shows after the pandemic **25% of drivers** plan to drive less: [Source](https://www.thisismoney.co.uk/money/cars/article-8260957/A-fifth-motorists-claim-theyll-drive-lockdown.html) *(sorry, another UK source I know but I couldn't find similar for the U.S., this is a generalisation of the western world but again as above it will be replicated no doubt to varying degrees)*
* OK...so as I was typing I found this which shows **US mileage dropped by as much as 60%** during the height of the pandemic last year: [Source](https://www.npr.org/sections/coronavirus-live-updates/2020/05/06/851001762/the-pandemic-emptied-american-roads-but-driving-is-picking-back-up?t=1613224790884) \- the caveat is of course that mileage and car use will absolutely pick up as the pandemic ebbs and flows and eventually ends
* **22.7% of employed Americans** were working from home in September due to the pandemic and in management/professional occupations that number rockets to over 40%: [Source](https://www.bloomberg.com/news/articles/2020-10-05/americans-are-driving-less-than-before-pandemic-and-it-s-permanent)
* When the world emerges from this, office hours and behaviour will never be the same, working-from-home and hybrid "x days at home and x days in the office" will become the norm, the pandemic has forced companies and employees to prove they can work just fine from home - and that they have, in many cases exceeded expectations.
Before the pandemic was a thing there was STILL a clear need for this in the market, this was always going to be an appealing and great model, COVID19 has simply been a catalyst to bring $MILE to the forefront quicker. Ready to expand.
Do you really think all these people who have picked up recipe box subscriptions, online grocery shopping, at home spin/peloton classes and more will revert back to the old way pre-pandemic? Some may, but most will not. People like convenience and ease of use. New habits will stay.
# Cons/Watch Outs
* The move to hybrid or work-from-home models may not be adopted as much as we think post-pandemic - personally I don't think this will be an issue because 1) I just cannot see a world where businesses don't adapt to this, it ultimately saves them money and 2) this business model is not built on a pandemic, as I said COVID19 has simply been a catalyst to drive adoption and awareness.
* The insurance goliaths (i.e. Geico) develop or market their own pay-per-mile model (I am not based in the U.S. so any additional insight in the comments from you guys is welcome, let's make this a discussion) - I don't see this happening any time soon, at least, not to the same complexity that $MILE are achieving, it would require huge investment and development to build anything near what $MILE have but you can't rule Buffet/Geico out
* Someone like Lemonade expand into the motor/pay-per-mile sector
* Root create a pay-per-mile model (unlikely imo due to their entire business being based on quoting your behaviour but you cant rule it out)
* Targeting infrequent drivers is a bit of a niche however this can also be viewed as a positive as they are set to dominate said niche
* For whatever reason, they do not expand to as many states as quickly as they desire, I will not pretend to understand what potential red tape is there
* The forecasted profits are from their investor deck so they are of course going to big themselves up, regardless I like what I see
# Wrap Up/TLDR
***"Buffet had Geico. I choose MetroMile"*** \- Chamath Palihapitiya. Go and read Chamath's one pager here: [https://twitter.com/chamath/status/1331278297930428417](https://twitter.com/chamath/status/1331278297930428417)
This is not a swing trade, this is not that P&D shit, this is a buy early, hold and ride the wave of a growing company built on great tech, a great team and a great business model. Here's your TLDR; read it properly and actually make a decision for yourself because I feel this is a sleeping giant just waiting to explode.
$INAQ's share price jumped from around $9 pre SPAC announcement in December to around $17 today. However since completing the merger on Wed 10th Feb 2020 and the ticker renaming to $MILE the price has barely moved, dipping a dollar or so and maintaining pre merger completion levels. I feel like the market are really sleeping on this and they are flying under the radar so I am getting in now before they reach their potential. I like the stock, I have a lot of confidence in it.
| 105 |
WillSpur
| 1,613,501,336 |
3m
|
investing
|
https://www.reddit.com/r/investing/comments/llamrw/mile_dd_metromile_just_went_public_here_is_why_im/
|
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