Corsicana Development Will Expand Bitcoin Mining Capacity By 2026

Key Takeaways

• Growing hash rate capacity and strategic investments in miners are expected to enhance Bitcoin production, improving revenue and net margins.
  
• Low power costs and a strong balance sheet enable Riot to capitalize on expansion opportunities, potentially boosting future revenue and earnings.
  
• Riot Platforms faces challenges from reduced Bitcoin subsidies, competition for power, delays in growth, rising expenses, and litigation impacting profitability.

Catalysts

Operates as a bitcoin mining company in North America.

• Riot is rapidly increasing its hash rate capacity, with an expected boost from 28 EH/s to 35 EH/s by the end of 2024, which should enhance Bitcoin production and, consequently, revenue growth.
  
• With recent investments in new generation miners and operational improvements, Riot is targeting an operational utilization rate of greater than 95%, which could significantly improve net margins by optimizing output and reducing waste.
  
• Riot's power strategy has led to one of the lowest power costs in the industry, at $0.031 per kilowatt hour, which should support higher net margins and operational efficiency, enhancing earnings.
  
• The full second-phase development of Corsicana, adding 600 megawatts of capacity, is set to complete in 2026, providing significant expansion opportunities for further hash rate scaling, potentially driving revenue growth and diversifying future income streams.
  
• Riot maintains a strong balance sheet, positioning it to make strategic investments and capitalize on growth opportunities, which could bolster future revenue and earnings by aligning CapEx with long-term infrastructure expansion.

Riot Platforms Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Riot Platforms's revenue will grow by 54.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.0% today to 18.3% in 3 years time.
• Analysts expect earnings to reach $211.1 million (and earnings per share of $0.66) by about December 2027, up from $12.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.3x on those 2027 earnings, down from 374.2x today. This future PE is lower than the current PE for the US Software industry at 42.0x.
• Analysts expect the number of shares outstanding to decline by 1.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.97%, as per the Simply Wall St company report.

Riot Platforms Future Earnings Per Share Growth

Risks

• Riot Platforms is facing reduced Bitcoin block subsidies and increased network difficulty post-halving, which could negatively impact their revenue and profitability from mining operations.
  
• The company reports significant quarterly losses, including a net loss of $154.4 million, indicating potential challenges in maintaining positive earnings despite rising revenues.
  
• Competition for power capacity, particularly from the AI HPC sector, could impact Riot's ability to secure cost-effective energy, subsequently affecting their net margins.
  
• Delays and adjustments in their growth forecast due to long lead times for substation equipment and facilities development might hinder expected hash rate expansion, impacting revenue projections.
  
• Increased litigation and M&A-related expenses, alongside onetime costs, are contributing to elevated SG&A expenses, potentially affecting net earnings.

Valuation

• The analysts have a consensus price target of $17.9 for Riot Platforms based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.0, and the most bearish reporting a price target of just $11.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.2 billion, earnings will come to $211.1 million, and it would be trading on a PE ratio of 33.3x, assuming you use a discount rate of 7.0%.
• Given the current share price of $13.97, the analyst's price target of $17.9 is 22.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.