Support.com (NASDAQ:SPRT) provides customer and technical support services that are delivered by employees who work from home. SPRT stock has been having a great 2021, with a year-to-date return of more than 1,300%. However, investors should note those gains didn’t happen gradually.
For those who missed this rally, even getting in SPRT stock last month would have delivered a return of 317%. In less than a week, shares more than doubled from an opening price of $15 on Aug. 26 to current levels above $30.
What are the big reasons for this rally in SPRT stock? Did investors miss something pivotal to this company’s performance in 2021?
The short answer is no. The uptrend is being driven by none other than the meme stock phenomena. Social media-fueled short-squeezes have moved many stocks, and the trend is unfortunately persisting.
However, the company’s meme stock status isn’t the only thing that has moved SPRT shares. Its initial March surge was based on a very different factor — a potential merger.
SPRT Stock: Why Did It Jump From $2 to $30?
Looking at SPRT stock’s chart without any background on its meteoric rise, I would have expected great news and fundamentals to have driven the surge. Until March, the stock was hovering near $2. At that point, it suddenly jumped out of penny stock territory to about $6.
Then, in August, it took off again and reached a 52-week high of $59.69 on Aug. 27. It has since traded for levels around $30 per share.
All this occurred on increased volume, too. These are conditions that are considered bullish in technical analysis.
But as InvestorPlace’s William White pointed out on Aug. 24, SPRT stock has incredibly high short interest. At the time, SPRT stock had a short interest of 33.4% with more than 24 million shares outstanding and a float of more than 17 million shares.
With that context, it’s clear that Support.com is the latest target of a short-squeeze.
A Merger Sparked Its March Rise
In previous months, the stock traded below $5 and was thus a penny stock, which arguably contributed to the March surge. The volume of the stock is indicative of this, as by that point it was an average of less than 150,000. Suddenly, on March 22, the volume surged to 282 million.
On that day, it was announced that Support.com would merge with Greenidge Generation Holdings, a Bitcoin (CCC:BTC-USD) mining company. The surge occurred in response to the news.
Now, investors probably got excited that Greenidge would become the first Bitcoin mining company to trade on the markets that also owns its own power plant. The company projects 2021 EBITDA of more than $50 million. It also forecasts a run rate higher than $160 million of EBITDA by the fourth quarter of 2022.
When the merger is complete, SPRT stockholders and option holders will have a combined total of 8% of Greenidge’s common stock.
Suddenly, Support.com was a rare mix of a penny stock, a meme trade and an opportunity for crypto exposure. What a combination, indeed.
Is Its Business Model Shifting or Changing Entirely?
The next day for big news on Support.com is Sep. 10, when the shareholders will meet to approve this pending deal.
Can something go wrong at this stage in the process? I believe that’s possible. First, a rejection of the merger by stockholders would probably send SPRT stock lower.
Second, are real synergies in place with this merger? At first glance, I thought the two parties didn’t have enough in common to make it work. But then I realized that when viewed as a shift to blockchain, NFT and fintech services, the deal makes a lot more sense.
The major problem is that Support.com will now have exposure to the price of Bitcoin and thus become a crypto mining play. I am not certain if SPRT shareholders will agree that this shift is worth the risks. Currently, cryptocurrency is highly volatile and facing strict regulatory problems.
SPRT Stock Earnings and Financials
In the second-quarter of 2021, Support.com’s financial results were not encouraging. Total revenue decreased to $8.5 million, a 23% decrease year-over-year.
The company saw a net loss of about $800,000, which comes out to a loss of 3 cents per share. Last year, it saw a positive net income of about $600,000, or 3 cents per share, in the same quarter. Support.com also saw a loss of $2 million in Q1 2021.
I am mostly concerned about the weak revenue trend the company has seen for the past few years. Its revenue of $43.9 million in 2020 was 30.7% lower compared to its 2019 revenue of $63.33 million. The latter revenue was also lower compared to the 2018 results.
Profitability and free cash flow are also lacking consistency. Net income of $446,000 in 2020 suggests that investors pay a premium now compared to the market capitalization of $638 million.
All things considered, I find the stock too pricey despite Support.com’s strong financial health. Its new Bitcoin exposure makes things far riskier for shareholders now.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.
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