Summary SharpLink Gaming offers exposure to Ethereum at a 17% discount to its net asset value, trading at 0.83x mNAV. SBET maintains a strong financial position with no debt, significant ETH holdings, and rising staking rewards, supporting long-term stability. Despite recent price declines, the long-term bull case for Ethereum and SBET remains intact, driven by stablecoin growth and tokenization trends. I reiterate a Buy rating on SBET for long-term investors seeking discounted Ethereum exposure, while cautioning about ETH volatility and potential future debt. On October 1, I published an article titled "Why SharpLink Gaming Is My #1 Ethereum Bet Right Now," and I gave the stock a Buy rating because it was a good Ethereum treasury company trading near its mNAV, and the long-term tailwinds for Ethereum were (and still are) worth betting on. Well, SBET has fallen by 41.5% since that rating, and Ethereum USD ( ETH-USD ) has fallen quite a bit as well. But to my defense, I did warn that Ethereum is no stranger to volatility and that investors should wait for a dip before getting more aggressive . As I write these words on November 25, the price of Ethereum sits at $3,014 per token. Meanwhile, SharpLink Gaming, Inc. ( SBET ), whose business model is to accumulate Ether and stake it, trades at 0.83x its fully diluted mNAV. The company holds $2.6 billion worth of ETH but has an enterprise value of $2.167 billion. In other words, this is like buying Ethereum at a 17% discount, or a price of around $2,500. SharpLink gaming is fundamentally sound and, so far, hasn't issued any debt and preferred shares in the same way that Strategy Inc. ( MSTR ) has done to buy Bitcoin USD ( BTC-USD ). This makes it much less risky, making the discount to mNAV more attractive. Due to its discount to NAV (which can reverse in a bull market), relatively low risk profile for a treasury company, and Ethereum's long-term tailwinds, I remain bullish on SBET stock for the long term. A Quick Note To Clear Any Confusion If you're someone who read my last two articles, which were on Novo Nordisk A/S ( NVO ) and Alexandria Real Estate Equities, Inc. ( ARE ), you'll notice that I gave them both a Hold rating besides their valuations being low. My reasoning was that a low valuation isn't always enough to justify a Buy rating. So, why am I giving SBET a Buy rating mainly due to its low valuation? It may seem inconsistent, so I just want to clear up any possible confusion. The first reason is that SBET is much easier to objectively call undervalued, at least relative to its ETH holdings, so investors may not ignore that valuation discount forever. Another reason is that this is specifically a long-term Buy rating. I'm taking a multi-year approach here. Third, I'm still warning investors about being super aggressive because buying into downtrends can be risky without some sort of confirmation of a bottom (more on that later). Lastly, I just find the catalysts for ETH to be more impressive than those of Novo Nordisk and Alexandria Real Estate. With that said, let's get to the analysis. What Happened To SBET Stock? I'm sure some investors are concerned about the continuously falling share price of SBET stock recently. But if you were an Ethereum bull before and are still an Ethereum bull now, then you're good, because nothing major has changed with SharpLink Gaming. The only thing that changed was crypto sentiment. The Sentiment Change On October 1, the CMC Crypto Fear and Greed Index was at 51, or neutral. Now, it's at 18, which is in the extreme fear range. I don't expect SBET stock to be trading at a premium during "extreme fear" moments, but I also don't expect the market to be in a perpetual state of extreme fear. Sentiment always bounces back. Crypto Fear & Greed Index (coinmarketcap.com) A Valuation Collapse Despite Solid Fundamentals When I last wrote about SBET, the stock was trading at 1.02x its fully diluted mNAV, which was close to a "fair" valuation since it was basically trading in line with the value of its ETH holdings. The company also held 838,728 ETH at that time, and it now holds 862,029 ETH, while its ETH concentration has ticked up slightly from 3.99 to 4.01. A quick way to calculate ETH concentration is to divide the number of ETH that SBET holds by each 1,000 "Assumed Diluted Shares Outstanding," according to SharpLink. The good news is that the company calculates it for us on its ETH dashboard. The higher, the better. ETH Concentration (SharpLink Gaming) The company still has no debt and still owns just Ethereum. It also continues to earn staking rewards from its fully staked ETH holdings. From November 16 to November 2023, its staking rewards rose from 7,403 ETH to 7,846 ETH, a 443 ETH increase. At an ETH price of $3,014, that's around $1.3 million worth of ETH staking rewards in a week. In the past 8 reported weeks, its staking rewards grew from 4,272 ETH to the most recent 7,846 ETH, or an average of 446.75 ETH per week. SharpLink Gaming's Staking Rewards (SharpLink Gaming) I understand why a company like SBET would fall to around a 1x premium (or slightly lower) during rough times, but to be honest, I don't see any good reason for the stock to be trading at 0.83x mNAV, which is quite a noticeable discount. SharpLink Gaming's mNAV (SharpLink Gaming) A Quick Look At SBET's Q3 Results SharpLink Gaming released its Q3 results on November 12. Let's go over the results. Net income was $104.3 million, or $0.62 per fully diluted share compared to a loss of $885K (-$3.02 per diluted share) in the same period last year. That's due to ETH share price gains, although the company is now down around $432 million on its ETH investment. Next, SBET's revenue grew by over 1,100% to $10.8 million due to the change in business model from being an affiliate marketing company (which is now its legacy business) to an ETH treasury. The affiliate marketing revenue was just under $570K. The remainder of the revenue came from staking. Staking Revenue Should Continue Rising As long as the price of ETH doesn't crash, I expect staking revenue to increase over time. The more ETH SharpLink gets (whether from staking rewards or ETH purchases), the more it can stake, and the more it will earn. Staking revenue doesn't show up on the cash flow statement as cash flow, so if you take a look at free cash flow, you'll see that it was a negative $6.3 million for Q3 . However, the staking rewards SBET receives should outpace the cash outflows. I mean, SBET generated $1.3 million worth of ETH in staking rewards in just one week, and a quarter has 13 weeks. I'm aware that the numbers will fluctuate week to week, as they depend on multiple factors, but just to simplify it, 13 x $1.3 million will get you $16.9 million in a quarter. My point is that the company could theoretically sell some of its ETH that it earns from staking to cover costs if it ever needed to, while not sacrificing all the staking rewards. The staking rewards should also cover stock-based compensation if it remains low, as it was just $3.6 million in Q3. SharpLink's Financial Position Is Strong At The Moment SharpLink ended the quarter with $11.1 million in cash and $26.7 million in USDC stablecoins, so we can say that its cash and cash equivalents were $37.8 million. Meanwhile, SBET has no debt. The good thing about SharpLink Gaming having no debt or preferred securities is that Ethereum can crash 80% from here, and we wouldn't have to worry about the company becoming insolvent. We also wouldn't have to worry about the company issuing shares to meet its obligations (SharpLink even stated on its ETH dashboard that it will "never utilize its At-the-Market (“ATM”) facility while trading below NAV"). We'd just have…other issues at that point, mainly with the share price. Conversely, a company like Strategy has a bunch of periodic payments it needs to make, which become harder to make if the price of BTC crashes. The Long-Term Bull Case For Ethereum Is Still Intact I already mentioned the bull case for Ethereum in my ETH article linked in my introduction paragraph, as well as in my last SBET article. It has only been 2 months since then, so I don't think the thesis has changed. First, stablecoin usage is still growing (and most stablecoins are circulating on Ethereum). As of November 25, the total Ethereum stablecoin supply was $182.3 billion. That's up from $174.8 billion on October 1, when my last SBET article got published. ETH Stablecoin Supply (theblock.co) Second, tokenization is still a big catalyst. As I stated in my ETH article, tokenization refers to taking assets like Treasuries, corporate bonds, real estate, and more and creating digital versions of them on the blockchain, with the Ethereum network having a large market share of tokenized assets under management. The Risks The main risk here is the price of ETH itself, as recent investors have learned. We're now 39% off the all-time high, and the peak-to-trough drop was about 47%. But as I've stated in past articles, ETH is no stranger to 50-80% drawdowns, so there's no guarantee that this is the bottom. Right now, we're experiencing a multi-day bounce in a multi-week drop. It could very well be a "dead-cat bounce." It's too early to say. But at least the extreme fear gives us hope that we'll soon be due for a sentiment reversal. ETH-USD Weekly Chart (TradingView) Another risk is the potential for the company to raise debt. I'm not saying that any debt raised is automatically bad, as it can be done in an accretive fashion, but the company needs to be smart about it and not reckless. Debt raises are not off the table for SBET, as management said the following in the Q3 earnings call: When our multiple to NAV is below 1, we can raise capital to fund share buybacks. We can do this by monetizing our volatility through convertible bonds or other equity-linked structures, and we can utilize a portion of the $3 billion of ETH on our balance sheet as collateral to borrow capital. This is something to monitor going forward. The Bottom Line On SharpLink Gaming Stock Now that sentiment has turned negative around crypto and ETH treasury companies, there are relative bargains to be had. At the moment, you can purchase SBET stock at a fully diluted mNAV of 0.83x. If you're a long-term Ethereum bull, this is a chance to pick up ETH at a discount. Buying SBET at this point can lead to an outperformance relative to the price of ETH because it's very likely that when/if ETH-USD eventually recovers, SBET's multiple will recover as well, and it can likely head well over 1x mNAV in times of greed. This doesn't include the fact that the company can issue shares at a premium (during optimistic times) and buy back shares under mNAV during rough times, all to increase ETH per share. I discussed this in more detail in my previous article. Certainly, this will be a volatile investment, but I believe Ethereum's long-term upward trajectory will continue in the long term, and SBET is a great way to bet on it at a discount.