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Proprietary Data Insights Financial Pros’ Top IT Services Stock Searches in the Last Month
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Should You Buy Into Crypto’s Resurgence?
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Despite investor demand, we don’t have a cryptocurrency ETF…yet… Bitcoin and related crypto stocks surged recently after news leaked we could soon see cryptocurrency ETFs approved. This would be a HUGE boon for the industry. Of the crypto stocks available to trade, Riot Blockchain (RIOT) was the top search by financial pros. Yet, we wanted to find out whether they were just curious…or whether there might be something investible here, especially with earnings just around the corner. Riot’s Business Riot is a technology firm specializing in cryptocurrency mining and blockchain services. The company’s edge lies in its ability to leverage extensive expertise and infrastructure to tap into growth prospects in the burgeoning digital asset space. The company focuses on the mining of digital currencies like Bitcoin, using specialized hardware and software for the task. Additionally, it offers hosting and consulting services to fellow miners and enterprises in the blockchain sector. However, Riot derives nearly all its revenues from mining operations.
Source: Riot Investor Relations In early to mid-2024, Bitcoin is expected to ‘halve,’ an event that occurs every four years where the reward for new block mining of Bitcoin is cut in half. Riot claims it’s well-prepared for this event. Yet, for a company that barely eeks out a positive operating profit, we question whether that’s true.
Source: Riot Investor Relations Financials
Source: Stock Analysis Riot is nowhere near profitability. The price of Bitcoin and the total mining capacity used dictate nearly all of the company’s revenues. It’s only been since June 2022 that the company generated positive cash from operations (which reversed in the most recent quarter). That’s why we view their ‘preparations’ for Bitcoin’s halving with extreme suspicion. Thankfully, the company has practically no debt. Yet shares continue to dilute year after year. However, Riot has almost $300 million in cash on hand, more than enough to keep it operational for at least a few more years. Valuation
Source: Seeking Alpha Riot isn’t profitable…but neither are most of the other companies we looked at. In fact, it’s the only one with positive operating cash flow. MicroStrategy (MSTR) generates positive earnings, but it relies on cryptocurrency far less than the others for its business. Growth
Source: Seeking Alpha The worst part is none of these companies are seeing revenue growth. While Marathon Digital (MARA) and Riot both grew revenues in the last few years and expect growth next year, they saw double-digit declines over the last 12-month period. However, they’re making progress on profitability, with forward EBITA growth nicely positive for both companies. Profitability
Source: Seeking Alpha Coinbase (COIN) and MicroStrategy might have the best gross margins. But neither can translate that into actual profit or cash. What’s interesting is Hut 8 (HUT), another miner, has a positive EBIT margin but a negative net income margin. That appears to fluctuate based on the price of digital currencies. Nonetheless, when companies are simply trying to get off the ground, cash is king. And only one generates cash. Our Opinion 2/10 While we believe in the potential for blockchain technology, we aren’t interested in miners. The business model isn’t unique, doesn’t appear sustainable, and is effectively a proxy for owning cryptocurrencies. As we’ve said in the past, if you want to own cryptocurrencies, own them. Don’t use derivatives like RIOT. |
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