SOS Bull Thesis

Hey whoever is reading this, my name is Clint.

I’m on StockTwits as @IdeletedRobinhood (formerly @IdownloadedRobinhood).

Several have been asking me some general due diligence related questions lately and StockTwits only lets me type so much at once, so I’ve decided to make a blog. Here I will post more detailed analysis and maybe other things too. I enjoy writing so maybe this could be fun for everyone.

I want to preface with the fact that I have a dry sense of humor. So if you think to yourself, “Was that supposed to be funny?” – it probably was.

I may also link people here occasionally just to avoiding typing the same ideas twice and to save my thumbs from working overtime.

My first blog post contains select SOS due diligence of mine as it compares to MARA since some are not clearly seeing a bull thesis for SOS and believe it is just a hype/pump play:

SOS is a stock I bought a large position in at $2.30 on January 26th. Since then the stock has garnered a lot of attention. This is due partly to the fact that it has a massive upside potential, but is also due to the fact that everything I touch turns to gold.

“But MARA is the king! They have 30,000 miners and SOS has none set up yet!”

SOS made 49.5 million in revenue with near 10% margins in 2020 and projected 173M in annual revenue for 2021. The aforementioned numbers were before any crypto-mining business plan whatsoever and only took into account their existing blockchain security business.

On the first trading day of January 2021, SOS was valued at 50.7M or at a 1.02x 2020 annual revenue multiple. I don’t know exactly how much cash they had on hand because the 2020 Q4 balance sheet has not been released yet, but point being: undervalued. SOS was pinned by short sellers and the manipulation was a bit obvious.

MARA, on the other hand, had under 2M annual revenue in 2020 and was trading at a 1B dollar market cap (less 200M cash, so an 800M enterprise value) on the first trading day of January. So MARA was trading at essentially 400x revenue. Why? Because the price of Bitcoin started increasing and MARA had some mining rigs.

Currently, SOS just took delivery of their first 5,000 mining rigs and intend to have them operational by today, February 14th, 2021. They have another 10,000 to be delivered within the next couple months per a purchase agreement.

Many believe MARA has 33,000 operational mining rigs. That is being cited from their December 28th 2020 PR in which they say they aim to have 103,000 mining rigs operational by the end of 2021 which triples there current fleet of 33,000. However, if you read their February 1st 2021 PR they actually only currently have 2,560 miners; the 33,000 miners which they previously spoke of is a purchase agreement which is projected to be fulfilled by September 2021, which can be verified by reading their December 9th 2020 PR.

My point being, SOS as of today (assuming they’ve installed the mining rigs by today as they previously stated) actually has just under double MARA’s mining rig count. MARA is getting another 4,000 by the end of the month so then MARA will have just over 1,560 more than SOS. And then SOS is getting another 5,000 next month. Then MARA will install an additional 6,300. Then SOS will receive the remaining 5,000 of their current purchase agreement.

What this means is that SOS is actually neck-and-neck with MARA as far as current operational miners go for the short term-future.

The biggest recurring crypto-mining expense is cost of power. SOS secured an agreement with the Leobodong hydropower station for cheap, renewable energy to power their mining center at an untouchable discount.

MARA does have a larger amount of purchase agreements projected to be fulfilled by the end of the year, but SOS is sitting on ~200M in cash.

As of today (February 14th, 2021) MARA is currently valued at 3.61B. SOS is valued at 484M. With the 200M cash SOS has, negligible debt, current mining capacity, existing crypto-insurance business revenue/growth, I believe a valuation of 1B ($15.37/share) is an acceptable fair value at the time being.

110M of the estimated 200M in cash held by SOS was raised last week in a direct offering. The company “intends to use the proceeds from the offering to develop its recently launched cryptocurrency mining and cryptocurrency security and insurance business as well as for working capital and general corporate use.”

If/when SOS takes that 200M cash and starts announcing additional purchase agreements for mining rigs, then we can make our way towards 2B market cap or $30.74/share.

Bitcoin going up in price? Even better.

Not hype in my opinion, just math.



Disclaimer: Not investment advice. Just for entertainment blah blah blah

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