What happened
Shares of cryptocurrency-mining and energy-technology company CleanSpark (CLSK +2.25%) got hammered on Tuesday after it reported financial results for the third quarter of 2021. Management talked up the company's growth, particularly when it comes to mining Bitcoin (BTC +3.34%). But it appears the market was surprised with its big loss this quarter. As a result, CleanSpark stock was down a whopping 22% as of noon EDT today.
So what
For the third quarter, CleanSpark reported revenue of $11.9 million, which was up 250% from the same quarter last year. And looking at the first three quarters of fiscal 2021, the company's revenue is up 176% to $22.3 million. Most of this growth is coming from its Bitcoin mining business. Between increased mining power (measured with a term called "hash rate") and a less competitive mining environment (because miners in China have been shut down), CleanSpark mined a record 191 tokens during the quarter and now holds 301.4 on its balance sheet.
Image source: Getty Images.
Bitcoin mining, however, is just one part of the business. The other is its energy segment, which provides energy-optimization technology. For the third quarter, this segment generated $2.9 million in revenue. The company executed an encouraging $6 million in energy contracts, which helps it build a relatively substantial backlog.
Going into the quarter, CleanSpark had net income of $200,000 for the year. But in the third quarter, the company had a net loss of $16.7 million. Some of this was technically nonrecurring stock-based compensation. But the size of the loss seems to have caught investors off guard and is likely the main reason the stock is down today. It is now down a painful 74% from its 2021 high.
CLSK data by YCharts.
Now what
CleanSpark's management raised full-year revenue guidance by roughly $3 million to a range of $49 million to $62 million, with most of this coming from Bitcoin. The company also plans to increase its hashing power considerably over the next year and a half, and management says its could be generating $446 million to $480 million annually when all of its planned mining rigs are operational. For perspective, CleanSpark's market capitalization is currently under $400 million, which makes shares look like a bargain.
However, take all of the guidance regarding Bitcoin with skepticism because of two assumptions that are baked in. First, management is basing these projections on Bitcoin being at $47,000, which isn't guaranteed. Second, these projections are also based on the current difficulty rate of the Bitcoin blockchain network. For perspective, when China banned its miners, the overall difficulty rate got significantly easier overnight and CleanSpark was able to mine more tokens than otherwise possible.
If the price of Bitcoin drops, CleanSpark will struggle to meet these numbers. Conversely, if the price stays the same or even increases, expect more miners to increase their hash rates and make the difficulty rate go up, also making it hard for CleanSpark to meet these numbers.
