Benzinga - by Anusuya Lahiri, Benzinga Editor.
Riot Platforms, Inc (NASDAQ:RIOT) shares are trading lower after Kerrisdale Capital’s Founder and Chief Investment Officer, Sahm Adrangi, issued a report on the stock.
Adrangi expressed a bear view on Riot Platforms, a $3 billion Bitcoin (CRYPTO: BTC) miner that excels more in energy arbitrage and stock issuance than in generating shareholder value through crypto mining.
According to the analyst, Bitcoin mining is one of the worst business models for a public company due to unpredictable revenue, high capital requirements, fierce competition, the commodity nature of the product, and increasing regulatory scrutiny, even in crypto-friendly places like Texas, where Riot operates.
Benzinga has emailed Riot Blockchain for comments on the short report.
Also Read: Riot Platforms May Over Power Marathon Digital As Largest Publicly Traded Bitcoin Miner – Analyst Explains How
Given these drawbacks, it is unsurprising that Riot has never produced positive cash flow or a decent return, he flagged.
However, it is surprising that Riot’s shareholders tolerate excessive management compensation and frequent dilution.
Riot has issued over $507 million in stock (18% dilution) through April alone, with the latest issuance at prices similar to the current stock price. Adrangi said shareholders should question why management believes it is better to sell Riot shares and hold Bitcoin and whether they should do the same.
Bitcoin miners like Riot were attracted to Texas for its cheap energy and lenient regulatory environment, but the analyst stated that this honeymoon period is ending.
Similar to global patterns, concerns over environmental impact and other externalities have led to increased oversight and legislation that could limit financial incentives for miners in Texas.
Riot investors seem oblivious to political and regulatory shifts as another summer approaches, which will test Texas’ fragile electric grid, Adrangi said.
This occurs as Bitcoin miners face significant profitability cuts following the latest block reward halving. As May production figures and Q2 results come in, investors will better understand the industry’s poor unit economics, which was already questionable pre-halving, as per the analyst.
Adrangi added that investors now have better options for Bitcoin exposure with low-fee ETFs and ETPs.
Riot Platforms lost 16% in the last 12 months. Investors can gain exposure to the stock via Global X Blockchain ETF (NASDAQ:BKCH) and Fidelity Crypto Industry And Digital Payments ETF (NASDAQ:FDIG).
Price Action: RIOT shares are trading lower by 6.93% to $9.00 at last check Wednesday.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo via Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.