Riot Blockchain (NASDAQ:NASDAQ:RIOT) is another fast-growing Bitcoin (BTC-USD) mining company that I have yet to cover on Seeking Alpha.
While I do believe Bitcoin will be accepted as money everywhere in the future, I think it’s foolish to trade Bitcoin for US dollars at the moment.
However, I want to give you several different Bitcoin-related companies to choose from, and Riot is one of the stronger ones.
This article will discuss pros and cons of investing in Riot Blockchain stock and share some key details about the company’s future outlook.
Riot Blockchain is an American Bitcoin mining company that mines Bitcoin in Central Texas, USA. The company owns the single Bitcoin mining facility, Whitestone US, that has a total power capacity of 750 MW.
The company has 46,658 Bitcoin miners deployed at a hashrate of 4.8 EH/S.
In its most recent Q2 2022 quarter, Riot generated $72.9 (Up 112% YoY) million in revenue and mined 1,395 (Up 107% YoY) Bitcoin in total.
Net losses were -$366.3 million for the quarter, due to mostly Bitcoin impairment charges caused by a drop in Bitcoin’s price.
The company plans to increase its mining fleet to 115,450 ASIC miners by Q1 2023 at a 12.5 EH/s hashrate.
In order to increase future output, Riot announced 265-acre, 1 gigawatt expansion site in Navarro County, Texas, with Bitcoin mining operations at the new facility remaining on track to start next summer.
Riot holds 6,720 Bitcoin on its balance sheet as of August 31st, 2022.
Total value of Riot’s cash ($270 million) + Bitcoin holdings ($1343 million) equals $404 million. Investors are paying almost a 3x premium on the company’s short-term cash holdings.
Riot trades at a Price to Sales ratio of 2.77, which is cheaper than Marathon Digital’s (MARA) 7 P/S ratio.
Of course, more investors buy MARA stock because the company has nearly 4,000 more Bitcoin on its balance sheet (10,311 as of August 31st, 2022).
My Opinion on Riot Blockchain
Riot produced some solid Bitcoin output in August 2022 during the current crypto bear market. Riot produced 374 Bitcoin (Down 17% YoY) and earned $3 million in power credits that can be converted into Bitcoin.
Riot produced twice as much Bitcoin as its main competitor, Marathon Digital Holdings, but the company has made a few crucial mistakes in my opinion.
August 2022 Bitcoin Production by Largest Publicly Traded Miners
|Company||August 2022 BTC Produced|
|Riot Blockchain (RIOT)||374|
|Marathon Digital Holdings (MARA)||184|
|Core Scientific (CORZ)||1,334|
Source: Author, from company filings
Riot sold 355 Bitcoin in August 2022 for a total of $7.7 million to strengthen its balance sheet. The company held around $270.5 million in cash as of Q2 2022.
Riot’s constant decision to sell Bitcoin is probably the only reason why I don’t own RIOT stock.
Bitcoin is the most important asset class of the future in my opinion, and I prefer to invest in companies that use a long-term HODL strategy.
Selling Bitcoin at current market prices doesn’t make sense due to all the fear and panic surrounding the crypto markets.
While Riot does have an impressive output, I wish management would use more creative ways to fund capital such as selling stock or taking on low interest debt while Bitcoin prices are depressed.
Riot has several potential problems to face if things don’t go as planned.
- Bitcoin prices could be depressed over the next 6 months and Riot’s cash flow will be affected by the crypto bear market.
- Selling Bitcoin will cost the company a lot of money in the long run if Bitcoin soars past $100,000 into the 6 figures. Management might regret dumping a long-term hard asset for short-term gains.
- Riot may dilute shareholders through stock offerings to raise cash in the future. Dilution is only a good option if a company HODLs its Bitcoin like MicroStrategy (MSTR) or Marathon Digital does.
- Inflation fears could force the company to delay scaling its mining faciility, which will lead to lower Bitcoin production output.
- Energy prices could increase and reduce Riot’s Bitcoin production margins in the future.
Riot Blockchain isn’t my favorite Bitcoin mining stock to hold because I don’t like companies that sell Bitcoin to fund operations. Whenever you sell Bitcoin for US dollars, you are showing investors that you are long fiat currencies and short Bitcoin.
However, I do like Riot’s increasing production and give them a solid buy rating at these current price levels.
If the crypto markets recover in 2023 then Riot Blockchain is a solid stock to buy when others are fearful right now.