Bitcoin mining giant Riot Platforms is potentially sitting on a lucrative opportunity that it has yet to fully explore. Starboard, known for its aggressive activist investing strategies in the US stock market, has acquired a significant stake in Riot Platforms. According to Starboard, Riot has the potential to transform itself by shifting its focus towards hyperscaler demand.
Riot currently operates large Bitcoin mining facilities in central Texas and Kentucky, along with a strong electrical engineering division based in Denver. Despite owning 16,728 Bitcoins and boasting a mining infrastructure with over 1 gigawatt (GW) capacity, the company has been underperforming in the stock market. This underperformance has caught the attention of Starboard, signaling a need for intervention to drive profitability.
In terms of numbers, Riot Platforms has a market valuation of $3.97 billion, with a share price of $11.55. However, the company has experienced a 24% drop in stock value this year, despite Bitcoin’s 130% surge. This disparity in performance compared to competitors who have seen triple-digit gains highlights operational and leadership challenges within Riot.
Starboard’s track record of 155 activist campaigns with an average return of 23.27% underscores the potential impact of their involvement in Riot. The company’s high selling, general, and administrative costs of $225 million this year, primarily driven by excessive stock-based compensation for executives, have resulted in significant operating losses.
Moreover, Riot’s corporate governance issues, including a staggered board and instances of nepotism, have contributed to high power costs and SG&A expenses per Bitcoin mined. As a result, Riot’s valuation lags behind industry peers based on metrics like enterprise value to petahash per second (EV/PH/s).
Starboard believes that hyperscalers present a trillion-dollar opportunity for Riot. Hyperscalers, such as Amazon Web Services and Microsoft Azure, require massive data centers to support AI and high-performance computing. Riot’s existing facilities in Texas align well with hyperscaler needs, offering high-performance computing infrastructure, renewable energy access, and scalability.
Competitors like Core Scientific have already capitalized on this opportunity by leasing capacity to AI data center startups, resulting in significant profit margins. Riot could potentially generate substantial revenue by leasing its unused capacity to hyperscalers, potentially doubling its current revenue.
By transitioning its facilities to cater to hyperscaler demand, Riot could see significant financial gains and potentially triple its revenue. Embracing this shift could also lead to improved stock performance, as seen with other Bitcoin miners who have embraced hyperscalers.
In a strategic move, Riot recently invested $510 million in buying Bitcoin on the open market, hinting at a desire to increase its Bitcoin holdings without expanding mining capacity. However, Starboard’s proposal to use hyperscaler revenue to fund Bitcoin purchases presents a more sustainable cash flow strategy, akin to a MicroStrategy approach.
The potential for Riot Platforms to thrive in the hyperscaler market is clear. By leveraging its existing infrastructure and aligning with the growing demand from hyperscalers, Riot has the opportunity to unlock significant value and drive long-term profitability.