Summary Cipher Mining Inc. recorded a GAAP profit in the fourth quarter of 2023. The Company's balance sheet is strong with ample liquidity, giving it a material competitive advantage. The Company has outperformed the Valkyrie Bitcoin Miner's ETF since that ETF's inception. Introduction In this article, I continue my coverage of crypto miners by examining Cipher Mining, Inc. ( CIFR ) (the " Company "). Recent articles have covered Bitfarms Ltd. (" BITF ") and TeraWulf Inc. (" WULF ") and, in this article, I will compare the Company to those two competitor miners. In the past, I have also covered Argo Blockchain Ltd . (" Argo ") and hope to post an update article on Argo in the near future. Relative to BITF and WULF, I am upbeat about the Company and have purchased a small position in the crypto miner. At this juncture, I think the Company is a speculative BUY for several reasons, which will be discussed below. Before I address those reasons, however, I have included some background information with respect to the Company. Brief Background Per its recent 2023 Form 10K (Annual Report) Filing (the " 2023 10-K "), the Company styles itself as an emerging technology company. The Company develops and operates four (4) industrial scale bitcoin mining data centers in Texas. A fifth Texas mining data center is in development, and the Company has ambitious expansion plans beyond that. Per the 2023 10-K (linked above): Our key mission is to expand and strengthen the Bitcoin network’s critical infrastructure. As of February 29, 2024, we operated approximately 80,000 miners, with an aggregate hashrate capacity of approximately 8.4 exahash per second (“EH/s”), deploying approximately 267 megawatts (“MW”) of electricity, of which we owned approximately 70,000 miners, with an aggregate hashrate capacity of approximately 7.4 EH/s, deploying approximately 236 MW of electricity." There are several other articles on Seeking Alpha which provide background data regarding the Company. See also the Company's website . For purposes of this article, my focus is primarily on financial data. Speculative Buy Rationale I own shares of the Company for several reasons: First, I remain bullish on Bitcoin ( BTC-USD ) (" Bitcoin ") because of reckless U.S. fiscal spending , and the Company is leveraged to the price of Bitcoin -- and probably more so than many of its competitors. Second, the Company's stock performance is outpacing both the S&P 500 and the Valkyrie Bitcoin Miners ETF ( WGMI ) (the " Bitcoin Miners ETF ") since the inception of the Bitcoin Miners ETF. Seeking Alpha While the Company's stock performance has been impressive over such period, it is hard to believe it can continue at this pace unless the Company can start to report positive GAAP earnings. Unlike many of its competitors, however, the Company is doing just that (see Third below). Third, per the recent earnings release, the Company achieved GAAP profitability for the fourth quarter of 2023: We are delighted to announce our fourth quarter 2023 results, which reflect our first full quarter in which all four of our data centers were operating at full capacity. We delivered a quarter with strong positive net income on both a GAAP and Non-GAAP basis. And while recent FASB accounting changes have been a tailwind for all the miners’ earnings, Cipher was net positive for the quarter even without those accounting changes,” said Tyler Page, CEO of Cipher. “These record results are driven by our best-in-class unit economics.” Specifically, for the fourth quarter of 2023, the Company reported results which compared favorably to the prior quarter and the fourth quarter of 2022. Q4, 23 Q3, 23 Q4, 22 Revenue (millions) $43.4 30.3 $3.0 GAAP Net Earnings (millions) $10.6 (17.7) ($51.6) Bitcoin Mined 1,327 1078 377 For Q3, 2023 data, see the 10-Q filing for the quarter ended September 30, 2023. Notably, for the fourth quarter of 2023, BITF and WULF lost $57.4 million and $10.5 million , respectively. Fourth, the Company has a strong liquidity position relative to BITF and WULF. December 31, 2023 (in thousands) Company BITF WULF Cash $86,105 $84,038 $54,439 Bitcoin/Digital Assets $32,978 $31,870 $1,801 Total Liabilities $74,801 $83,963 $155,617 Source: For Company data, see the 2023 10K; for BITF data, see here ; and for WULF data, see here . Fifth, the Company is not diluting its shareholders at the same rate as many of its competitors. Over the two-year period ended December 31, 2023, the Company increased its share count by less than 20%. BITF and WULF, on the other hand, have not been as shareholder friendly. The table below shows that common stock outstanding for the Company at the end of 2021, 2022 and 2023, respectively, as per the Consolidated Statements of Stockholder Equity included in the 2023 10-K and the 2022 10-K Annual Report (the " 2022 10-K "), respectively. Date No. of Common Shares Outstanding (Company) 12/31/2021 252,131,679 12/31/2022 251,095,305 12/31/2023 296,276,536 Bitfarms The table below shows that BITF's dilution of its common stockholders over the last two years has been greater than the dilution experienced by holders of the Company's common stock. Date No. of Common Shares Outstanding 12/31/2021 194,806,000 12/31/2022 224,200,000 12/31/2023 334,153,000 TeraWulf The table below show that WULF's dilution of its common stockholders over the last two years has been far greater than the dilution experienced by holders of the Company's common stock. Date No. of Common Shares Outstanding 12/31/2021 99,976,253 12/31/2022 145,492,971 12/31/2023 276,733,329 The numbers provided above speak for themselves, and I expect the Company's advantages to compound relative to those two competitors, at a minimum. In this regard, it is not surprising that the Company has materially outperformed BITF and WULF for the January 1, 2022 through April 8, 2024 period. Seeking Alpha For the reasons outlined above, on a relative basis, I like the Company's prospects compared to those of BITF and WULF. Q4 2023 Earnings On March 05, 2024, the Company announced results for its fourth quarter and full year ended December 31, 2023. In that announcement, the Company's CEO highlighted that: We are particularly excited about our expansion plans for 2024 and 2025. We expect to be at 9.3 EH/s by the end of Q3 2024 via the fully funded expansions at our Bear and Chief data centers and over 16 EH/s in the first half of 2025 via the fully funded phase one build of our Black Pearl data center. We have the potential to grow to 25 EH/s by the end of 2025 with the eventual completion of Black Pearl. We have already seen the results we can achieve with our operational leverage. With the strength of our balance sheet, our expansion plans and proven track record on execution, we expect to be a clear winner through the halving and into the next cycle.” The Company also highlighted "record revenues and net profits on both a GAAP and Non-GAAP basis in the first quarter of operations since inception with fully deployed data centers" and, as part of its expansion plans, closure of an "acquisition of the 300 MW Black Pearl facility...." Review of Balance Sheet Selected Balance Sheet Items (in thousands) Dec. 31, 2023 Dec. 31., 2022 Dec.31, 2021 Cash 86,105 11,927 209,841 Digital Currency 32,978 6,283 ----- Total Current Assets 155,498 47,735 223,660 Total Assets $566,137 $418,463 $354,167 Total Current Liabilities 33,793 40,326 499 Total Liabilities $74,801 $75,571 $636 Accumulated Deficit (136,777) (111,209) (72,156) Total Equity $491,336 $342,892 $353,531 Source: 2023 10K and 2022 10k. A couple of things stand out in looking at three years of balance sheet figures. First, the asset base has grown each year, while liabilities have stabilized. Notably, the Company does not have any debt, although it does have capital and operating leases that show up on the balance sheet as non-current liabilities. Second, shareholder equity has increased materially off of the 2022 base, and the growth in the accumulated deficit is slowing. Should the Company continue to build on its profitable 2023 fourth quarter, that deficit should decline in 2024. Third, as was discussed earlier in the article, the Company is demonstrating excellent liquidity, with current assets exceeding current liabilities at roughly 4.6X. Fourth, because the Company's liquidity is solid, there is no pressure on the Company to raise funds and dilute shareholders. Moreover, with no debt, the Company is not being run for the benefit of creditors, as is the case with some over-indebted crypto miners. Risks and Conclusion General Risks The risks of investing in the Company are included in the 2023 10-K linked above. Particular concerns about investing in the Company include the volatility of Bitcoin and the capital intensive nature of the business, and the overall competitiveness of the industry. Bitcoin Halving In addition, the upcoming Bitcoin halving event (the " Halving Event ") will make it more difficult for the crypto miners to generate revenue absent a material increase in the price of Bitcoin. The Halving Event is expected to occur on April 20, 2024 . Specifically, the Halving Event will result in the reduction of Bitcoin rewards for mining a block by 50% (from 6.25 Bitcoin to 3.125 Bitcoin). Should the price of Bitcoin fail to rise after the Halving Event, the Company's revenue related to mining new coins could decline and such decline could be material. In its 2023 10-K, the Company describes the Halving Event risk as follows: Our revenues are directly impacted by changes in the market value of bitcoin. For example, the average bitcoin price for 2021 and 2022 was $47,385 and $16,526, respectively. Bitcoin price generally increased throughout 2023. As at December 31, 2023, the price of bitcoin was $42,288. Furthermore, block rewards are fixed at 6.25 per block, and it is estimated that it will halve again to 3.125 per block in April 2024. The halving events happen without any regard to ongoing demand, meaning that if the ongoing demand remains the same after a halving event, whatever demand was being met by new supply will be restricted, which may necessitate an adjustment of the price of bitcoin, though there is no definitive evidence of a causal link between bitcoin's programmatic decrease in supply and broadening demand. Once the halving occurs, we expect that it could have a negative impact on our revenues as the reward for Bitcoin mined will be reduced." [Emphasis Supplied] Conclusion The above risks notwithstanding, based on my analysis of the financial data, I think the Company, which was previously unknown to me, could be one of the longer term winners in the space (assuming there will be winners, which is not guaranteed). In summary, for the reasons set forth in this article, on pullbacks, the Company is a BUY for the speculative part of your portfolio. Of course, do your own due diligence!
