SharpLink, holder of 870,000 Ether… Attention on earnings release amid “2 trillion won loss”

Q4 earnings release on the 9th

Full-year revenue seen at $29 million

Q3 also delivered an “earnings surprise”

Variables include “snowballing” unrealized losses

SharpLink Gaming, the world’s No. 2 corporate holder of Ether (ETH), is set to report last year’s results soon. With this marking its first full-year earnings release since adopting a “digital asset treasury (DAT)” strategy, market attention is intensifying. With the crypto market remaining sluggish, investors are watching to see whether the company will announce a financing plan to fund additional Ether purchases.

According to the industry on the 9th, SharpLink Gaming will hold its Q4 earnings call at 8:30 a.m. local time that morning. In Korea, it will take place at 9:30 p.m. the same day.

The outlook is not bleak. According to TradingView, consensus Q4 revenue is $16.85 million (about 25 billion won), up about 56% from the prior quarter ($10.8 million). If so, full-year revenue is expected to reach $29 million (about 43 billion won), nearly eight times the year-earlier level ($3.66 million).

SharpLink Gaming also posted an “earnings surprise” in Q3 last year. Q3 revenue surged 12-fold from a year earlier ($0.9 million). Compared with the prior quarter ($0.7 million), it jumped more than 15-fold.

“Staking rewards” as the key

The driver behind the surprise results lies in the Ether it began accumulating in June last year. From the early days of adopting its DAT strategy, SharpLink Gaming staked (deposited) virtually all of its Ether holdings, securing sizable rewards. Unlike the crypto it accumulated, staking rewards are classified as “revenue,” which is why revenue has surged since Q3 last year, when the DAT strategy was ramped up in earnest.

This contrasts with BitMine, which adopted a DAT strategy around a similar time but only belatedly entered Ether staking late last year. Joseph Chalom, CEO of SharpLink Gaming, also expressed confidence during the Q3 earnings release last year, saying, “The results proved our execution capability.”

Its Ether holdings have also continued to rise. According to SharpLink Gaming, the company’s Ether stash increased from about 820,000 in September last year to about 870,000 this month—an increase of nearly 50,000 over the past six months. SharpLink Gaming’s revenue structure is such that revenue rises in tandem as its Ether holdings—which are proportional to staking rewards—increase. The company described this structure as a “compound return strategy that manages capital flexibly.”

Unrealized losses nearing $1.35 billion

The problem is the unrealized loss that has ballooned like a snowball. SharpLink Gaming’s average purchase price per Ether is about $3,600, nearly 80% higher than the current price (about $2,000). With Ether down more than 33% year-to-date, SharpLink Gaming’s unrealized loss has swelled to $1.35 billion (about 2 trillion won).

Even if revenue keeps climbing, the burden can only grow if Ether’s downtrend persists. The larger the unrealized loss, the more the equity premium weakens—raising the likelihood that its existing strategy of selling stock to raise funds for Ether purchases could be thrown off course.

SharpLink Gaming’s mNAV (market-to-net-asset-value ratio) stood at 0.88x as of early this month, already below 1x. An mNAV below 1x means SharpLink Gaming’s market capitalization is less than the value of the Ether assets it holds.

The stock has also struggled. According to TradingView, SharpLink Gaming shares closed at $7.36 in the previous session (the 6th), down about 53.5% over the past six months. That is more than a 90% drop from late May last year (about $79), when the Ether DAT strategy was disclosed and the stock hit a record high.

Pivots accelerate, including ETHZilla

Given the circumstances, a number of Ether treasury companies have moved to pivot (shift their business models). A notable example is ETHZilla, a U.S. Nasdaq-listed company that attracted investment from PayPal co-founder Peter Thiel. After repeatedly selling Ether since the second half of last year, ETHZilla changed its name to “Forum” at the end of last month to fully pursue a real-world asset (RWA) business. FG Nexus, another Nasdaq-listed company that adopted a DAT strategy last year, has also sold Ether multiple times recently.

Still, some argue there is ample growth potential when considering Ether’s fundamentals. The view is that one must factor in not only the Ethereum network’s inherent potential but also the distinct nature of an Ethereum-based DAT strategy capable of generating staking-based returns. U.S. investment banks (IBs) B. Riley and Cantor Fitzgerald are also maintaining their “buy” ratings on SharpLink Gaming.

Blockchain analytics firm Arkham said, “Ethereum is often regarded as a ‘productive asset’ because of its role within the ecosystem,” adding, “(Unlike a Bitcoin DAT,) companies that hold Ethereum can generate additional income through staking thanks to Ethereum’s proof-of-stake (PoS) mechanism.”