On Oct. 4, 2017, Bioptix, a tiny company that owned a veterinary products patent and was developing new methods for detecting diseases, abruptly abandoned its original business model and renamed itself Riot Blockchain. Shortly afterward, the company unveiled its plans to become a pure-play Bitcoin miner.
At the time, many investors dismissed Bioptix's transformation into Riot as a cynical attempt to capitalize on the growing interest in blockchain-powered services and Bitcoin(CRYPTO: BTC) to generate some short-term gains. But if you had invested $1,000 in Bioptix on the day it announced that big change, your investment would be worth about $2,200 today. Let's see why Riot defied the critics, how it scaled up its business, and where it could be headed in the future.
Image source: Getty Images.
How Riot Platforms became a pure-play Bitcoin miner
After rebooting its business, Riot acquired mining startup Kairos Global Technology, invested in the cryptocurrency exchange Coinsquare, and ordered thousands of Bitcoin miners from Bitmain. Those moves set the foundations for the expansion of its mining fleet and the production of its own Bitcoin.
In 2021, it swapped its stake in Coinsquare for newly issued shares of fintech company Mogo(NASDAQ: MOGO); acquired Whinstone U.S., which owns the largest Bitcoin mining facilities in North America; and bought electric component engineering company ESS Metron to support the expansion of its own infrastructure and serve third-party clients.
Riot Blockchain rebranded itself as Riot Platforms(NASDAQ: RIOT) earlier this year to reflect the gradual diversification of its business beyond Bitcoin, but it still generates most of its revenue from Bitcoin mining and Bitcoin sales.
At the end of June, Riot's active fleet of 95,904 Antminers had a hash rate (which gauges its mining efficiency) of 10.7 exahash per second (EH/s). That's more than double its 42,455 deployed miners, which produced 4.4 EH/s a year earlier, but it missed its own target of deploying 120,150 miners to generate 12.8 EH/s by this past January. It's also still smaller than its chief rival, Marathon Digital (NASDAQ: MARA), which had deployed 149,900 miners to generate 17.7 EH/s as of July 1.
How rapidly has Riot grown?
Riot's entire business depends on having Bitcoin's price rise at a faster rate than its energy costs. But after hitting an all-time high of nearly $69,000 in November 2021, Bitcoin's price tumbled to about $30,000 as rising interest rates, the failures of several high-profile crypto exchanges, and tighter regulations crushed the crypto market. As a new crypto winter started, inflation caused energy prices to soar. That's why it wasn't surprising when Riot's revenue growth cooled off and its losses widened last year.
| Metric | 2020 | 2021 | 2022 |
|---|---|---|---|
Revenue | $12 million | $213 million | $259 million |
Net loss | ($14 million) | ($15 million) | ($510 million) |
Data source: Riot Platforms.
Riot offset some of that pressure by liquidating a lot of the Bitcoin it had initially hoarded. It sold -- or transferred to employee compensation -- 3,464 Bitcoins for in 2022, compared with a mere six Bitcoins in 2021. It then sold another 3,575 Bitcoins in the first half of 2023, but it still held 7,250 Bitcoins on its balance sheet at the end of June.
Riot's cycle of constantly producing and selling its own Bitcoin enabled it to continue growing even as Bitcoin's price was cut in half. But there's also no clear path toward profitability yet -- and 17,040 of its miners have remained offline since a winter storm in Texas damaged one of its buildings last December.
Will Riot's stock keep rising?
For the full year, analysts expect Riot's revenue to rise 43% to $370 million as it narrows its net loss to $152 million -- but investors should be skeptical of those forecasts because they're tethered to unpredictable Bitcoin and energy prices. Based on those expectations, Riot still isn't cheap at 9 times this year's sales. Marathon, which faces tougher regulatory challenges than Riot but has more ambitious expansion plans, trades at 7 times this year's sales.
Riot's stock price more than doubled after the company reset its business model, but simply investing in Bitcoin would have turned $1,000 into $6,900 during the same period. Past performance never guarantees future gains, but I still believe it's smarter to simply invest in Bitcoin -- instead of capital-intensive miners like Riot or Marathon -- if you're bullish on its future.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
