CA - Riot Platforms: Potential Long-Term Opportunity In A Consolidating Industry

2024-05-31 18:59:33 ET

Summary

• Riot Platforms' bid to buy Bitfarms signals potential consolidation in the competitive Bitcoin mining industry.
• Riot is reducing costs by purchasing power plans from utilities in Texas and using a flexible approach to mining.
• Scaling production capacity is crucial to overcome the effects of difficulty and sustain production levels in the face of halving rewards.
• However, comparison with peer Marathon Digital shows that Riot may not have increased hashrate fast enough to avoid a YoY revenue shortfall compared to last year, when it will report second-quarter revenues in July.
• Therefore, there are volatility risks which explain my Hold position, but, with a focus on maximizing self-mining operations, the company could represent a long-term opportunity.

I covered Riot Platforms ( RIOT ) with a Hold thesis in June 2021 highlighting the way it was scaling, and since it has lost 71.5% in value and is trading at around $10. Its growth strategy saw it recently make a takeover bid for Bitfarms (NASDAQ: BITF ) for about $950 million. This, I believe should be followed by other deals in a highly competitive crypto-mining industry where it is getting more difficult to produce Bitcoins....

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