Riot Blockchain, Inc. (NASDAQ:RIOT): Weaker-Than-Expected Q3; Reduce Price Target
Q3:22 revenue missed expectations, impacted by lower Bitcoin (BTC-USD) prices. We maintain our BUY rating but lower our target price to $7.00 per share (earlier $12.25).
52-Week Range Share Outstanding
$4.02 – $46.28
Total Debt Debt/Equity
Daily Volume (3 mo. Avg.)
Revenue $ (mil.)
Riot’s current operating footprint coupled with its planned expansions positions the firm as one of the leading cryptocurrency mining companies in North America. The expansion will increase Riot’s hash capacity to 12.5 EH/s by Q1:23, nearly 2x compared to current capacity which is likely to provide a significant boost to growth beginning 2023 and beyond. The Company has been working towards improving its cost structure as evident by the shift of miners from Coinmint’s facility to Riot’s own facilities in Texas. We believe RIOT offers a unique combination of growth and value within the cryptocurrency mining sector.
Revenues down 28.6% vs. prior year. Q3:22 total revenues declined by 28.6% to $46.3 million as compared to $64.8 million in Q3:21 and were down sequentially versus $72.9 million in Q2:22. The revenue decline was attributed to lower Bitcoin production and decreases in the price of Bitcoin. Mining and Hosting registered declines of 59% and 25%, respectively.
Mining segment revenues down 59% YOY to $22.0 million versus prior year revenues of $53.5 million. The increase was due to a lower number of Bitcoins mined (1,042 in Q3:22 vs. 1,292 in Q3:21), partially offset by a 28% drop in Bitcoin price ($21,184 in Q2:22 vs. $41,837 in Q3:21). The decline in the Bitcoin price resulted in lower mining segment margins (61.2% in Q3:22 versus 75.7% in Q3:21).
Hashrate capacity up 27% YOY. As of September 30, 2022, the Mining business operated 55,728 miners, with a hash rate capacity of 5.6 exahash per second (EH/s), representing growth of 27% as compared to Q3:21. RIOT anticipates 115,450 miners in operation with a hash rate capacity of 12.5 EH/s by Q1:23.
Net loss of $36.6 million, compared to a net loss of $15.3 million in Q3:21. Net loss for Q3:22 was negatively impacted by impairment on Bitcoin, and a decrease in the fair value of power derivative assets.
Adjusted EBITDA was $0.2 million during Q3:22, compared to adjusted EBITDA income of $37.5 million in Q3:21.
Strong financial position with $369.8 million in working capital, including $255.0 million in cash on hand, and 6,766 Bitcoin. Bitcoins held on the balance sheet were up 39% compared to 4,884 BTC at the end of Q4:21.
Capacity expansion on track. RIOT made substantial progress on the 400 MW expansion at Whinstone. The expansion is expected to be completed in Q1:23. Additionally, the development of a 265-acre 1 GW expansion in Navarro County, Texas which began in Q2:22 is progressing well. The first phase of the expansion comprises 400 MW of Bitcoin mining infrastructure. The mining operations at this facility are expected to commence in Q4:23.
We value RIOT using industry peer companies (a P/S multiple) blended with our Discounted Cash Flow valuation to derive a fair value target price for the Company.
We value RIOT using a P/S multiple. We use publicly traded cryptocurrency mining companies as its peers. We value RIOT at 2.5x 2024 sales and then discount that result back at our computed cost of capital. Our multiple is at a premium to the peer group average given RIOT’s position as one of the largest publicly listed Bitcoin mining company in North America. The multiple based target price is $6.64, which discounts back to the present value of $5.99.
We weight the other 50% of our target using our Discounted Cash Flow target. Our DCF model uses our forecasted free cash flow to the firm over the next three years and then grows EBIT at a 20% rate over years four and five, 15% over years six and seven, 10% over year eight and 3% thereafter. We apply a weighted average cost of capital of 10.88%. Our DCF produces a value of $7.73.
The combination of $5.99 at 50% and $7.73 at 50% results in a weighted average price target of $7.00.
The exhibit below summarizes our peer group multiples, while the DCF is included at the end of this report.
Thomson Reuters and Singular Research
Best of the Uncovereds offers new initiation reports on roughly two dozen companies per year, with a focus on under-followed small and mid caps with significant potential. We provide a quarterly earnings update reports on all companies covered, as well as flash reports on significant news announcements by companies. We go further for members, providing recorded interviews with management teams of covered companies when available and a monthly quantitative based “Market Indicators and Strategy Report.”
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: IMPORTANT DISCLOSURES
The following disclosures relate to relationships between Singular Research and Millennium Asset Management, LLC (“Millennium”) and companies covered by Singular Research and referred to in research reports.
This report has been prepared by Singular Research, a wholly owned subsidiary of Millennium which is an investment advisor registered in the State of California. Singular Research receives fees from Millennium for the right to use and distribute research reports prepared by Singular Research.
Millennium does and seeks to do business with companies covered in Singular Research’s research reports. Millennium may receive fees from issuers that are the subject of research reports prepared by Singular Research for investor and public relations and other marketing-related services provided to such issuers by Millennium. As a result, investors should be aware that Singular Research and Millennium may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
This research report is for our clients’ informational purposes only. This research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. Any opinion expressed in this report is subject to change without notice and may differ or be contrary to opinions expressed by other professionals or business areas of Singular Research or Millennium. We are under no responsibility to update our research.
The views expressed in this research report accurately reflect the responsible analyst’s personal views about the subject securities or issuers. No part of the analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that analyst in the research report.
Millennium and its affiliates, officers, directors, and employees, excluding analysts, will from time to time have long or short positions in, and buy or sell, the securities or derivatives thereof of covered companies referred to in our research reports. Our affiliates, officers, and directors won’t execute on any new recommendation or recommendation change until 48 hours after the dissemination of the report.
This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of the investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors.
BUY, 30% or greater increase in the next 12 months.
BUY- Long-Term, near-term EPS horizon is challenging, attractive long-term appreciation potential.
HOLD, perform in line with the market.
SELL, 30% or more declines in the next 12 months.
© Copyright 2022 Singular Research
No part of this material may be copied, photocopied, or duplicated in any form by any means or redistributed without the prior written consent of Singular Research