In the ever-growing cryptocurrency space, Riot Platforms, Inc. (NASDAQ: RIOT) has solidified its position as a key player, especially in the Bitcoin mining space. Investors sometimes use the stock’s performance as a litmus test for the broader industry.like us Digging deeper into Riot’s financial and operating results, specifically in the third quarter of 2023, a complex picture of challenges and triumphs unfolds, providing investors with a nuanced view of the mining industry. On the one hand, we see the exciting prospects of Bitcoin ETFs, the recent cryptocurrency surge, and the halving providing a boost for the coin in the medium term; on the other hand, the halving may create challenges for miners ( Unless Bitcoin rises significantly), and there is a risk that energy prices surge again pushing up production costs.
Snapshot Q3 2023: Revenues mixed, production costs surprising
Riot’s third quarter of 2023 painted a picture of strong growth, with total revenue reaching $51.9 million, a significant increase from $46.3 million in the same period last year. However, this growth trajectory is not without challenges.
An interesting phenomenon emerged this quarter – the average mining cost of Bitcoin was negative ($6,141), which is in stark contrast to the previous year. This anomaly stems primarily from power curtailment credits, which significantly boosted Riot’s revenue, which added $49.6 million in the quarter.
It’s important to remember that investors want companies to win from their core businesses, not through credits, but the challenges facing mining companies are still fresh in everyone’s minds, which may lead investors to look at recent results to gain a better understanding. The way.
Nonetheless, Riot did put together a good report in October. The cornerstone of their operations is the deployment of 98,694 miners, achieving a strong hash rate of 10.9 EH/s. Mining efficiency has also attracted much attention, with an average of approximately 12.0 Bitcoins mined per day and a total of 1,106 Bitcoins mined.
Riot’s core business, Bitcoin mining, produced 1,106 Bitcoins in the third quarter of 2023. This output was achieved despite increasing network difficulties and speaks volumes about the company’s operational efficiency and technological advancements. In the most recent production update, we can see that things are continuing to improve, with average daily production reaching 14.8 BTC in October, indicating that the company is ramping up production, but this is still down from 16.4 BTC in the same period last year Year. In other words, we’re trending towards improvement on a monthly and quarterly basis.
|Average Bitcoin production per day
|Bitcoin Sales – Net Proceeds
|Average net price per Bitcoin sold
|Deployed hash rate
As a low-cost Bitcoin (BTC-USD) producer, Riot Platforms claims that the direct cost to produce one Bitcoin year-to-date (YTD) is $5,537 (this is different from the average cost mentioned above), which is significantly lower than the average cost of Bitcoin. Market value. The company’s Bitcoin mining gross margin is as high as 79%, highlighting a recurring theme of operational efficiency despite market challenges. Additionally, the cost of electricity, a key component of the mining economy, is competitively priced at $0.017 per kilowatt-hour.
On the financial front, Riot Platforms maintains a strong liquidity position with a cash balance of $290 million and holds 7,327 Bitcoins worth approximately $198 million.
Notably, the company has zero long-term debt, which is especially noteworthy in an industry typically characterized by high leverage.
Hashrate Scaling: The Roadmap for the Future
Going forward, Riot’s requirements are clear – to significantly increase its hash rate. Targets of 12.5 EH/s per second by the end of 2023 and 20.2 EH/s by mid-2024 underscore the commitment to growth and market dominance. These plans are supported by strategic decisions such as the agreement with MicroBT and the optimization of the mining fleet. These steps not only imply expansion but reflect an adaptive approach to technological advancements and increased efficiency.
The challenge for miners and hashrate growth is how they pay their fees and how production costs change before and after the halving.
In the past, miners have relied on secondary issuances to fund operations between cryptocurrency bull runs. In fact, Riot recently entered the market in August.
Another factor is the halving. Halving has the potential to disrupt or greatly improve the Bitcoin mining model. In the past, we have seen Bitcoin appreciate at a much faster rate than the reward losses due to halvings. This has boosted the industry. With the halving approaching, there is a risk of a negative outcome, but Bitcoin’s recent moves are improving the situation.
We may need to see major improvements in miner profitability, but it’s important to note the correlation between these stocks and coins regardless of past profitability (and Riot’s relative performance).
Facing Risk: The Reality of the Crypto World
Despite the promise, Riot’s journey also comes with risks and uncertainties. Bitcoin price volatility remains a constant problem, adding a layer of unpredictability to a company’s revenue stream. Operational threats, such as those related to mining activities and data center management, are also increasingly prominent. In addition, global economic conditions, regulatory changes, and technological advances pose potential challenges that Riot must address, which also create high-risk/high-reward opportunities. In fact, we can see a surprising decline in earnings recently.
We can also see that the P/E ratio has stabilized somewhat, which effectively positions the stock as an alternative to Bitcoin – which, historically speaking, isn’t a bad thing.
As the company navigates the choppy waters of Bitcoin price volatility and the upcoming halving event, it has demonstrated an unwavering commitment to growth and efficiency. The most recent quarter’s performance, marked by strong revenue and robust mining output, provided a glimpse into Riot’s ability to adapt and thrive amid the challenges inherent in the industry. However, relying on curtailment credits to achieve negative mining costs may raise questions among discerning investors about the sustainability of such gains.
Riot’s future roadmap is ambitious, with a major hash rate expansion on the horizon. Strategic partnerships and technological advancements will strengthen the company’s position, but how Riot funds this growth amid halved cost pressures will be crucial. The company’s history of leveraging market capitalization and the potential impact of halving on Bitcoin mining models highlight the importance of strategic financial planning. With Bitcoin’s recent positive momentum, Riot’s prospects for continued success appear promising, but are dependent on market dynamics.
While Riot Platforms Inc. has demonstrated impressive operational and financial strength, the reality of risk in the cryptocurrency space cannot be ignored. Investors looking at Riot must weigh the potential for high returns against the backdrop of Bitcoin volatility, operational risks and broader economic factors. The company’s low debt profile and strong liquidity position could cushion some of these uncertainties, making Riot an interesting choice for those willing to participate in the high-risk/high-reward nature of the cryptocurrency mining industry. I have rebuilt the position to an appropriate size for speculative opportunities. I think Riot is a buy.