Riot Blockchain (NASDAQ: RIOT) shows cryptocurrency stocks could be incapable of making money.
Notably, no Riot financial numbers Riot for 31 December 2020 are available. Instead, the only numbers I could find were from 30 September 2020. Those numbers show Riot Blockchain (RIOT) loses money.
In particular, Riot reported a quarterly operating loss of -$2.11 million and a quarterly gross profit of $1.16 million on 30 September 2020. However, the quarterly operating loss fell from -$11.97 million on 30 June 2020.
However, Riot did experience significant revenue growth in 2020. For instance, Riot’s quarterly revenues grew from $1.74 million on 30 September 2019 to $1.94 million on 30 June 2020 to $2.46 million on 30 September 2020.
Similarly, Stockrow estimates that Riot’s revenues grew by 41.49% in the quarter ending on 30 September 2020. However, Riot’s revenue growth shrank by -21.28% in the quarter ending on 30 June 2020.
Bitcoin drives Riot Blockchain’s incredible growth
I think the recent high Bitcoin (BTC) prices are responsible for Riot Blockchain’s high stock price.
For example, Mr. Market paid $54,960.90 for a Bitcoin on 23 March 2021. Not coincidentally, Mr. Paid $50.12 for a share of Riot Blockchain (RIOT) on 23 March 2021.
Both Bitcoin (BTC) and Riot have undergone incredible growth over the last year. Mr. Market paid $6,198.78 for a Bitcoin on 31 March 2020 and 67¢ for a Riot Blockchain share on 23 March 2020.
Bitcoin drives Riot Blockchain’s growth because the company’s business is Bitcoin mining. Mining is the use of complex algorithms to create cryptocurrencies.
Can Riot Make Money from Bitcoin Mining
I think the business plan at Riot Blockchain is to make money by mining and selling Bitcoin. Riot Blockchain’s principal asset is 6,040 Bitmain Antiminers (cryptocurrency miners).
Riot claims its miners have a hash rate of capacity of 456 PH/s and use 16.3 megawatts of electricity. They keep the miners at a Coinmint LLP facility in Massena, New York.
Massena is a small town near the St. Lawrence River and the Canadian border in Upstate New York. They mine Bitcoin in that area because of cheap hydroelectric power the river generates.
Riot has plans to expand its capacity. The company claims to have 9,000 S19 Pro mining computers. The hope is to expand, Riot Blockchain’s hash rate capacity by 566 PH/s and use 19.7 megawatts of electricity.
Riot Blockchain Investments
Besides mining, Riot makes targeted investments in blockchain projects. Currently, Riot invests in Tesspay and Verady. Tesspay is developing a blockchain-based escrow service for wholesale telecom carriers.
The hope is the service can guarantee full payment and on-time payment. They will fund the Tesspay escrow with Tess Smart Contracts. Tesspay is working with some major companies including IBM (IBM), Citibank (C) and the Bank of Montreal.
Verady is building VeraNet, a blockchain that supports cryptocurrency and audit technology services. The hope is to make VeraNet a bridge between cryptocurrency and traditional accounting. Verady is working with some financial service giants including Goldman Sachs (GS), Intuit, Thomson-Reuters, and Bitpay. Verady services include Ledgible.
How Much Money does Riot Blockchain make from Bitcoin Mining?
The financial numbers show that Riot Blockchain (RIOT) loses money from Bitcoin Mining.
For instance, Riot reported a negative quarterly operating cash flow of -$3.54 million on 30 September. Stockrow reports that Riot reported six straight quarters of negative operation cash flow between 30 September 2019 and 30 September 2020.
Conversely, Riot Blockchain reported a quarterly ending cash flow of $20.95 million on 30 September 2020. The quarterly ending cash flow rose from -$4.82 million on 30 June 2020.
Unfortunately, I think Riot achieved a positive quarterly ending cash flow because it borrows money. Riot Blockchain reported a quarterly financing cash flow of $34.11 million on 30 September 2020. Notably, Riot’s quarterly financing cash flow grew from $4.70 million on 30 June 2020.
I cannot tell how much debt Riot Blockhain has, but Stockrow estimates Riot’s net debt was -$30.09 million on 30 September 2020. The net debt rose from -$9.14 million on 30 June 2020.
What Value does Riot Blockchain Have?
I consider Riot Blockchain (NASDAQ: RIOT) a junk stock because it offers little value.
Notably, Riot Blockchain had $30.09 million in cash and short-term investments and $62.63 million in total assets on 30 September 2020. Yet Riot has added some value in 2020, its total assets grew from $32.99 million on 30 September 2019 and its cash and short-term investments rose from $15.16 million on 30 September 2019.
I think Mr. Market grossly overvalues Riot Blockchain. I think Riot Blockchain has no value because it makes little money and pays no dividend.
My advice is for investors to stay far away from Riot Blockchain. If you want to make money from Bitcoin buy Bitcoin or mine directly.