CleanSpark (CLSK:NASDAQ) has found itself appreciating significantly since being valued at a mere $1.05/share, at a market cap of a mere $20 million back in March 2020, at a time when nearly nobody knew who they were or what they were setting out to achieve. CleanSpark is a software-as-a-solution (SaaS) company centering their business model on microgrid optimization, predictive energy distribution and the future of Internet of Things (IoT). They possess, as I'll explain, several significant competitive advantages and technical expertise that position them to benefit from a paradigm shift in the energy market.
Even as their market capitalization was a mere $20 million, CleanSpark was anticipating over $10 million in revenue, which is one of the most undervalued propositions one could imagine as an investor. In addition, although today that revenue relies heavily on hardware sales and low margin deployments, their business model is swiftly and effectively moving toward mostly SaaS and 80%+ margin engineering support and consulting that will thrive after hardware is deployed.
Several key catalysts are serving to propel CleanSpark to new heights, including the Federal Energy Regulatory Commission (FERC) ruling (Order 841) that states barriers to distributed and behind-the-meter energy storage participating in wholesale electricity markets should be removed! This paradigm shift essentially allows consumers to serve as a utility, and utilities to serve as consumers, creating a two-way street for energy generation, storage and sales.
CleanSpark, alongside their intellectual property (IP) surrounding fractilgrids and predictive energy distribution, was one of the highest performing microgrid optimization platforms relative to industry giants like ABB, Lockheed Martin and even Siemens.
Moving beyond existing energy management, CleanSpark expanded into IoT, acquiring GridFabric in Aug 2020 for an undisclosed amount. This is a natural next step for the energy revolution, which has been talked about for nearly a decade but rarely illustrated beyond Alexa or Google changing our thermostats or letting us know a package has been delivered.
Although met with a near tepid response from the market, this acquisition provides CleanSpark to the final piece to the puzzle. For microgrids to work, you must have ultimate visibility and scalability of every item in your system. Interoperability of these elements and functions to the individual level is crucial when computing power is applied to optimize a grid's balanced sate. If handling the macro structure is moving your hand to the right notes, GridFabric now allows CleanSpark to individually press the right keys to compose the ballad.
Cofounders Ben DuPont and Matt Hale will both be joining the CleanSpark team, meaning as a business they now house the team that created the original open source Open Automated Demand Response (OpenADR 2.0) standard, which the International ElectroTechnical Commission, a network of 170 countries that cover 99% of the world population and electricity generation, adopted. Open ADR, in a sense, is giving the microgrid the ability to shake, shimmy and move to adapt to our living conditions and adjust to the predictions made by machine learning and priorities set down to the individual element by the end user.
Global Market for Microgrids is expected to experience 28% Compound Annual Growth Rate from 2020-2029 nearing $40 billion (Source: Navigant Research). Another critical aspect is that Title 24 requires, by law, that new buildings in California be OpenADR compliant. In turn, the manufacturers of all appliances or equipment will also have to be compliant going forward.
Beyond the technical expertise of its cofounders and the cloud/SaaS platform for their energy data, I will illustrate what this provides CleanSpark in the immediate future. GridFabric has several existing customers (i.e., electric vehicle chargers company Electriphi) and clients, two of which I will go into more detail, as they provide specific beneficial relationships. Stem Superintelligence is a leader in artificial intelligence (AI) energy storage, and some of their partners are quite notable, including Marriot hotels and Whole Foods, giving CleanSpark's vision for IoT some serious potential and scale.
In addition, packetized energy, another client listed for GridFabric, has relationships in using ADR with Enphase, Pacific Gas & Electric (PG&E) and Mitsubishi. Although these are not direct relationships, recent ADR installations include PG&E, Southern California Edison, and San Diego Gas & Electric.
As this landscape grows every entity is a potential customer for CleanSpark whenever it needs to become ADR compliant. In turn this also grows their accompanying software and the related subscription services and revenues.
I see OpenADR adoption accelerating worldwide as IoT gains steam, and this will bring an exponential increase in revenue for CleanSpark. Other companies with OpenADR compliant elements include giants like Samsung, ChargePoint (SBE), Blink Charging (BLNK), Panasonic, Siemens, and GridScape.
Given all of this information, I believe CleanSpark has built one of the most attractive economic and technological propositions for existing utilities and municipalities to integrate microgrids and predictive ADR/DER capabilities to their systems. I believe they were quick to act to a changing paradigm and capitalized in a new energy future that the public is ready and willing to embrace.
In addition, their business model includes recurring revenue, IP protection, technical expertise and a rapid improvement to quality of life and energy consumption that I think is difficult to replicate, although many will follow.
Microgrids are about to do for the grid what the Internet did with information.
Follow Jack Hurley on Twitter @_JaxCapital.
John "Jack" C. Hurley, a current MBS candidate at Rutgers University (Sustainability) previously graduated from Villanova University with a B.S. in Chemistry. He has been a value investor for nearly a decade with a passion for emerging technologies.
[NLINSERT]Disclosure:
1) John C. Hurley: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: CleanSpark. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None.
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