I Lastly, applied blockchain (NASDAQ:APLD) About Seeking Alpha, the main reason for calling it pending was how overvalued it was compared to both its data center peers and Bitcoin (BTC-US Dollar) mining peers.Since then As per the article, the stock price has doubled and the valuation metrics have actually improved. In this follow-up, we discuss some of the changes in the three months since our last article, revisit some of the metrics we surveyed in mid-June, and broadly assess the health of Bitcoin miners. I will try .
Since June, the company has made several significant non-earnings related announcements. The first was that the company has signed an agreement Marathon Digital (Mara) for hosting services. Under the agreement, Marathon will rely on Applied Blockchain for 90 megawatts of hosting capacity at APLD’s Texas facility and 110 megawatts of hosting capacity in North Dakota, which will eventually reach total capacity by mid-2023. It can reach 270 megawatts. Marathon’s hosting rollout won’t begin until Q422, so this will be his APLD’s incremental earnings in future quarterly reports. The news of the marathon undoubtedly gave APLD’s share price an immediate boost.
Another thing that impacted the price dynamics was the cancellation of about 5% of outstanding APLD shares. The shares were held by Sparkpool. Sparkpool, one of his major customers for Applied Digital May Investor Deck, has closed. From page 56 of APLD annual report:
SparkPool has agreed to cease providing contractual services to us and forfeit shares to compensate for future services not provided. As a result of this agreement, 4,965,432 shares of common stock were forfeited and canceled by the Company, reducing the number of shares of common stock outstanding.
It’s never a good thing to see your customers stop working. Later in this article, we explore the possibilities for this to continue. First, another pretty big news item the company recently announced is proposed name change From “application of blockchain” to “application of digital”. From the company:
Applied Blockchain continues to be a leading provider of digital infrastructure for many cryptocurrency mining operations, but its next-generation data centers support many other high-performance computing applications. It’s important to make the distinction.
i share this view. If approved, the name change would not be a move that would have an immediate impact on the company’s bottom line. But I consider it a wise decision. In his ESG environment, which we see in many corporate initiatives, I think subtle changes like this can ultimately help companies diversify their customer base over the long term. This is a good step towards eliminating the notion that Applied Materials is just a cryptocurrency company, opening the door a little more to HPC services.Finally, the company Exceed earnings expectations Last quarter top-line revenue was $7.5 million, versus guidance of $7 million.
In June, I started Hut 8 Mining (hut), Marathon Digital (Mara), and Riot Blockchain (Riot) as a Bitcoin mining peer for Applied Blockchain. At the time, APLD was trading at 37x Price/Sales TTM and 19x EV/Sales FWD. These figures were generally 10x to 20x higher than the multiples of selected bitcoin mining competitors. Amounts are down significantly and peers are up significantly.
Source: Seeking Alpha
Compared to the other three, APLD is now a bargain based on future EV/sales. But again, Applied Materials acts like a data center for miners, so pure miners are not perfect comps. From that perspective, the data center REIT used for multiple comparisons in the previous article is Digital Realty Trust (DLRMore), Equinix (EQIX), innovative industrial property (IIPRMore).
Source: Seeking Alpha
Here we can see that APLD is still overvalued on the trailing metrics, but much cheaper on the forward EV/sales. Although Applied Blockchain’s business model may be closer to that of a data center at its core, I think it’s important to remember that the company still relies on a healthy bitcoin mining industry for revenue. . Miners are currently facing a very difficult macro situation and I think it is important for APLD shareholders to keep that in mind.
It turns out that APLD has a business relationship with Marathon Digital. This will help alleviate the customer focus issue I mentioned in my June article.The company insight given About who currently makes up that customer base:
As of May 31, 2022, our customers are concentrated in the co-hosting business. It has agreements with JointHash Holding Limited (subsidiary of GMR), Spring Mud, LLC (subsidiary of GMR), Bitmain Technologies Limited and F2Pool Mining. , Inc. and Hashing LLC (a subsidiary of GMR) will utilize the first co-hosting facility.
One thing to note is that F2Pool mining requires Ethereum (ETH-US Dollar) mining footprint, but we don’t know how much of the mining we do on Applied Digital is Ethereum-based. I am facing confusion. He elaborated on why they can’t switch all GPU machines to his Ethereum Classic (ETC-USD) mining hereWe know that APLD has exposure to BTC miners with or without ETH.
as bitcoin hashrate continues to increaseminers need Bitcoin price to rise to counter increasing difficulty in achieving block rewards. You can see broad minor margins.
This squeeze on miner profits could eventually lead to rigs being powered off and mining operators defaulting on their debts. Hashrate and miner profits will not directly harm Applied Blockchain’s revenue, but if APLD’s customers cannot continue to operate at lower Bitcoin prices, it will impact long-term debt and cause customer churn. There is a possibility.
We still think Applied Blockchain is a very interesting stock to consider for crypto business investors. While the rest of the public miners saw their share prices come under some pressure last month, APLD has held up pretty well with just a 5% haircut.
With improved metrics and new industry-leading customers increasing revenue later this year, Applied Blockchain has many advantages. I currently do not own any stocks as I believe we are in a risk off environment. However, APLD considers him extending to 2023. I would like to know how the Ethereum merger will affect his APLD customers, if any. And we hope that bitcoin mining will become more profitable than it is today, taking pressure from the industry more broadly. I think it’s still a hold.