Bitcoin mining company Riot Platforms (RIOT) has sparked significant interest following a settlement agreement with Bitfarms (BITF), a vertically integrated Bitcoin data center. Previously, Riot had launched a hostile takeover attempt of Bitfarms. However, after a standoff, the two companies reached a settlement agreement, quelling the former’s hostile takeover attempt. Consequently, Riot’s stock has surged, increasing by over 20% in the past two weeks.
Riot also obtained rights to purchase Bitfarms’ shares, provided it holds a minimum of 15% of Bitfarms’ ordinary shares. This strategic move is anticipated to augment shareholder value and guide both companies toward their growth plans, making this a potentially compelling option for investors. However, this inflection point could be a source of volatility in the near future.
Riot and Bitfarms Find Common Ground
Riot Platforms is a key player in the Bitcoin mining sector, engaging in Bitcoin mining, data center hosting, and engineering. They offer co-location services for institutional Bitcoin miners and operate data centers. Additionally, Riot designs and manufactures power distribution equipment for large-scale commercial and governmental markets, including utilities, power, water, industrial, and alternative energy.
Recently, Riot and Bitfarms, both industry leaders in Bitcoin mining, announced a settlement agreement. Under the agreement, Riot agreed to drop its June 24, 2024, requisition and agreed to customary standstill provisions through the Bitfarms 2026 Annual Meeting, with certain exceptions.
The companies plan to expand the Bitfarms Board from five to six members, with Riot agreeing to vote in favor of this. Following this agreement, the Special Meeting of Bitfarms Shareholders, initially scheduled for November 6, 2024, may be postponed but won’t be later than November 20, 2024. Riot and Bitfarms view this agreement as beneficial for all Bitfarms shareholders, as it may boost shareholder value and help both companies implement their growth strategies.
Riot has also acquired the right to purchase shares of Bitfarms, subject to holding 15% or more of Bitfarms’ outstanding common shares.
Analysis of Riot’s Recent Financial Results
For the second quarter of 2024, Riot reported total revenue of $70 million, a decrease compared to $76.7 million in the same period in 2023. This reduction was primarily due to a $9.7 million decrease in Engineering revenue. However, Bitcoin Mining revenue increased by $6 million. The company mined 844 Bitcoin, a 52% drop from the same quarter of 2023, partly due to the block subsidy ‘halving’ event and increased network difficulty.
The average cost of mining Bitcoin, counting power credits, went up to $25,327 per Bitcoin compared to $5,734 in the same period of 2023. Mining revenue for the quarter was $55.8 million, compared to $49.7 million in 2023, mainly due to higher average Bitcoin prices and an increase in operational hash rate. Bitcoin Mining revenue exceeded the Bitcoin Mining cost of revenue for the quarter by $20.5 million. However, the company reported a net loss of $84.4 million, or $0.32 per share.
Yet, the company has maintained a robust financial position with $646.5 million in working capital, which included $481.2 million in cash.
What Is the Price Target for RIOT Stock?
Analysts following the company have been bullish on the stock. Based on eight analysts’ recent recommendations, Riot Platforms is rated a Strong Buy overall. The average price target for RIOT stock is $15.71, which represents a potential upside of 79.13% from current levels.
Shares of RIOT have been extremely volatile, with a beta just shy of 3. Yet despite the tumultuous ride, the stock is only down 6.9% over the past year. It trades near the low end of its 52-week price range of $6.36 – $18.75. Yet, the recent uplift has helped the stock shift to positive price momentum, trading above its 20-day (7.51) and 50-day (7.96) moving averages. It appears to be trading at a discount to industry peers, with a P/E ratio of 12.2x compared to the Capital Markets industry average of 19.75x.
RIOT in Review
Riot appears to be turning the page on the recent tumult of the Bitfarms saga. The company maintains sturdy financial footing and is currently trading at a relative discount. It also projects a substantial potential upside, making it a solid option among Bitcoin miners.
