TLDR
- ETHZilla sold $40 million in Ethereum on October 24 to fund share repurchases while stock traded at 30% discount to net asset value
- The company bought back 600,000 shares for $12 million from its $250 million authorized buyback program
- Meme stock investor Dimitri “Capybara Stocks” Semenikhin purchased 2% of company and urged management to execute buyback
- ETHZ stock rallied 26% combined in regular and after-hours trading on Monday following the announcement
- Company retains $400 million in ETH and plans continued sales to fund buybacks until discount closes
Ethereum treasury company ETHZilla sold $40 million worth of ETH from its holdings last Friday to address a growing problem. The company’s stock was trading far below the actual value of the crypto it holds.
The sale took place on October 24. ETHZilla used the proceeds to launch an aggressive share buyback campaign.
Since the sale, the company has repurchased 600,000 shares for approximately $12 million. This represents the initial phase of a $250 million buyback program authorized by the board in August.
Investor Pressure Drives Strategy
The buyback came after investor Dimitri “Capybara Stocks” Semenikhin took action. Semenikhin recently gained fame for his role in Beyond Meat’s dramatic stock rally last week.
He purchased more than 2% of ETHZilla’s outstanding shares. Semenikhin identified the company as undervalued based on its net asset value.
“Treasury bets are really measured by the multiplier they have on their net assets,” he said. ETHZilla’s multiplier sat at an all-time low of 50% when he made his purchase.
Semenikhin published an open letter to company management on Monday morning. The letter urged executives to utilize their authorized buyback program more aggressively.
Less than one hour later, ETHZilla announced it had executed the $40 million sale. The company confirmed it would continue repurchasing shares trading below NAV.
Stock Trading at Steep Discount
ETHZilla’s shares had fallen as much as 90% from their August peak. The stock was trading at approximately 30% below its net asset value.
This discount means investors could buy shares for less than the value of the Ethereum backing them. For a treasury company, this represents an unusual market inefficiency.
Chairman and CEO McAndrew Rudisill addressed the strategy in a statement. “By opportunistically repurchasing shares while our stock is trading below NAV, we plan to reduce the number of shares that are available for stock loan/borrow activity,” he said.
The approach also increases NAV per share for remaining stockholders. Each share repurchased at a discount effectively increases the value of outstanding shares.
The company completed a 1-for-10 reverse stock split last week. This move aimed to boost share prices and attract institutional investment.
Market Response and Future Plans
ETHZ shares jumped 14.5% during Monday’s regular trading session. The stock gained another 12% in after-hours trading after the buyback announcement.
Shares had touched $12.78 last week before recovering. The stock closed Monday at $20.65 and traded as high as $23.00 after hours.
The ETH sale timing proved less than ideal. The company likely sold around $3,900 per ETH on Friday.
Ethereum rallied over the weekend, reaching $4,250 before settling near $4,150. Despite the timing, the buyback program energized investors.
ETHZilla retains approximately $400 million in Ethereum after the sale. The company previously ranked sixth among publicly traded Ethereum treasury firms with 102,916 ETH.
Management stated plans to continue selling ETH to fund additional buybacks “until the discount to NAV is normalized.” This strategy aims to eliminate the gap between stock price and underlying asset value.
Billionaire Peter Thiel owns a 7.5% stake in ETHZilla, purchased in August. The company now has backing from both traditional investors and the newer meme stock community.
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