Will Riot Platforms Stock Bounce Back?

After a period of heightened uncertainty, Bitcoin has been on a tear this year. Moreover, despite the highly speculative nature of digital assets, bullish market sentiments surrounding Bitcoin’s prospective growth are spreading but will this translate to gains for Bitcoin miners?

The Global X Blockchain & Bitcoin Strategy ETF (NASDAQ:BITS) is up 28% this year, while the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) gained only 8%. The Bitcoin resurgence was primarily driven by the emergence of spot Bitcoin ETFs, which have garnered a lot of attention since their launch.

However, popular Bitcoin miner Riot Platforms, Inc. (NASDAQ:RIOT) is down 34% year-to-date, underperforming Bitcoin largely, so what does the future hold?

How Is Riot Platforms Doing?

Riot Platforms’ Bitcoin mining has experienced some ups and downs over the past year. In January 2023, the company produced an all-time high level of 740 Bitcoins. Since then, its produced Bitcoin count has reduced, reaching as low as 333 Bitcoins in August 2023.

After August, the production count was steadily increasing month-over-month until it hit a bump on the road this year when it declined from 619 Bitcoins in December 2023 to 520 in January 2024 and further dropped to 418 Bitcoins in February 2024 and then improved a bit to 425 Bitcoins in March 2024.

Another metric used to quantify Bitcoin miners’ operative efficiency is their hash rate, which indicates a crypto network’s computing power. As of last month, Riot Platforms had a deployed hash rate of 12.4 exahash per second (EH/s), up 18% year over year.

However, this hash rate is lower than that of its prime competitor, Marathon Digital Holdings, Inc.’s (NASDAQ:MARA) installed hash rate of 27.8 EH/s. Moreover, Riot Platforms has an average operating hash rate of 8.6 EH/s, while Marathon’s average operational hash rate stands at 18.3 EH/s.

On the other hand, Riot Platforms is betting on its aggressive expansion strategy to drive hash rate growth in the near term. The company expects to start production soon at its Corsicana facility, where it is currently undergoing Phase 1 development.

In June 2023, the company entered a long-term master purchase agreement with MicroBT and placed three purchase orders for additional miners. These are anticipated to increase Riot Platforms’ self-mining capacity by 28 EH/s. The company expects miner deployment at its Rockdale facility to begin in Q2.

Based on its growth plans, Riot Platforms anticipates a total self-mining hash rate capacity of 31 EH/s by the end of 2024, and upon full deployment in 2025, it is expected to reach 41 EH/s.

How Are Riot Platforms’ Fundamentals?

Over the past two years, Riot Platforms, like other Bitcoin miners, has faced an increasingly volatile operating environment due to the inherent volatility in Bitcoin prices and regulatory concerns. While Riot Platforms did not engage in debt-financing activities, the company is not profitable.

Total revenue increased from $213.24 million in fiscal 2021 to $259.17 million in fiscal 2022 and $280.68 million in fiscal 2023. However, the company posted a net loss of $49.47 million last year, which can be considered a turnaround compared to fiscal 2022, when losses climbed to $509.55 million.

On the other hand, the company has a lengthy cash runway. As of December 2023, Riot Platforms’ cash and cash equivalents stood at $597.17 million, up about 160% year-over-year.

The company ended last month with approximately $685 million in cash on hand and 8,490 unencumbered Bitcoin, reflecting a total liquidity of approximately $1.3 billion, based on the market price of Bitcoin at the end of the month.

Halving Approaching

The Bitcoin market is preparing for a “halving” this month, a process by which, at an approximate interval of four years, the number of Bitcoins a miner receives for solving a block is cut in half. This is also to keep Bitcoin as a finite resource. The cap is set at 21 million coins in circulation, which creates scarcity and, in theory, boosts prices.

Since its inception, Bitcoin has had three such halvings: In 2012, at a block height of 210,000; in 2016, at a block height of 420,000; and in 2020, at a block height of 630,000, when the reward was reduced to 6.25 Bitcoin per block. This means that it will go down to 3.125 after the approaching halving.

Halving is not seen as a sure-shot way to boost Bitcoin prices. For instance, prices might face downward pressure if miners sell their reserves. There have been fluctuations in prices after halving cycles despite positive long-term impacts. Hence, it’s hard to isolate the effect of this phenomenon on Bitcoin prices. However, it does make mining less profitable.

Will Riot Platforms Stock Bounce Back?

Wall Street analysts think the stock will bounce back by more than 90% to reach $19.63. Also, all eight analysts covering the stock recommend buying it.

Despite Riot Platforms’ recent sell-off, its valuation still exceeds industry standards significantly. It has a forward EV/Sales multiple of 4.17 and a Price/Sales multiple of 5.35. 

While such an upside expectation according to analysts might indicate a buy for the stock, a highly competitive backdrop where companies must keep pace regarding hash rates, face regulatory fears, and anticipate a significant event indicates that investors might exercise caution before investing in Riot Platforms stock.

As the halving approaches, Riot Platforms will likely face an uncertain market backdrop where sharp gains or sell-offs can occur.

CEO Jason Les said the company is preparing to deal with the halving by retaining a greater proportion of its monthly Bitcoin production. As a result, in March, Riot Platforms held 8,490 Bitcoins and did not sell any. In fact, the company also did not sell any Bitcoin in February.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.