Support.com (SPRT) is grabbing headlines this morning with its announced merger with Greenidge Generation, a bitcoin miner and power generation facility located in upstate New York. Merger is a loose term here. In reality, this is a reverse merger similar to what we see happening with Net Element (NETE) and Mullen Technologies.
Why does this matter?
Because of ownership post-merger.
Many reverse mergers involve an existing public company that is little more than a shell. SPRT does do close to $50 million in revenue, but it has no operating or profit margins to speak of currently. The stock was trading for not much more than its weight in cash. Revenue had been going in the wrong direction in fast way over the past three years. This is a great move for surviving shareholders. SPRT wasn't going anywhere.
On the other hand, Greenidge appears to have a lot going for it. Over the past year, it mined 1,186 BTC (bitcoin) at an average price of $2,869. Based on those costs and current prices, that's a net of $64.4 million, more than SPRT's gross revenue in 2019 and over the past 12 months. The sub $3,000 mining costs is eye-catching as well. Mining power at $22/MWh3 puts it under Marathon Digital Holdings (MARA) cost of $28/MWH3. Greenidge is being powered by its own natural gas plant. Owning your own power supply and running on green energy is where the industry needs to move if it wants to avoid additional banning like we are seeing in India. Power consumption is likely the major obstacle to true adoption of not only bitcoin but even NFTs (non-fungible tokens).
Support.com will bring at least $28 million to the merger. Although it is expected to be an operating subsidiary, expect Greenidge to sell off the SPRT for whatever it can get as soon as possible. There's no synergy there. On its own, Greenidge anticipates at least $50 million in EBITDA for CY2021 with triple digit growth by Q4 2022. In breaking it down, this company, if these details can be confirmed, appears to be a serious competitor to MARA and Riot Blockchain (RIOT) . Confirming all these details is key, because you're fooling yourself if you don't think names like Muddy Waters and Hindenburg aren't already digging deep here.
An important consideration, and this circles back to the importance of the reverse merger, is SPRT shareholders will only get 8% of the post-merger company. So, if you hear someone screaming about how cheap SPRT's market cap is around $150 million, remember you need to multiply that by 12.5 to determine the post-merger value with Greenidge. Currently, we're looking at a market cap between $1.75 billion and $2 billion based on the early morning trade. This sits around half MARA or RIOT, but well above the other plays in the space. On the surface, this appears attractive compared to the other two names, but until investors can see audited financials and likely a quarter or two as a public company, it should be no surprise that the stock trades at a discount to the other two big players.
Let the momentum and flippers play out over the next few days, then revisit this one if it is a sector that interests you because there could be something there worth considering.
