Riot Platforms Grapples with Rising Costs and Litigation

In a report released yesterday, Riot Platforms, Inc. (RIOT), a significant player in the Bitcoin mining industry, announced its Q1 FY23 financial results, which fell short of both top and bottom-line estimates, Benzinga reports. This disappointing performance is largely attributed to the increased costs in its data-center segment, surging by 46% quarter-over-quarter. The rise was primarily due to operational expenses following a severe winter storm and a hike in property and casualty insurance costs.

Adding to RIOT’s challenges, the company is currently embroiled in litigation with three firms relating to its acquisition of Whinestone. Interestingly, RIOT still hosts two of the three hosting contracts it inherited from the Whinestone acquisition. The hosting business, however, has been operating at a substantial negative margin, prompting suggestions that RIOT should repurpose the 100MW+ site for its self-mining crypto operations, which appears to be the core contention in the ongoing lawsuits.

Despite the mounting challenges, RIOT’s self-mining business demonstrated performance in line with expectations, but with marginally improved costs. Analyst John Todaro from Needham also highlighted an expected increase in self-mining revenue for Q2 due to elevated transaction fees across the Bitcoin network. Todaro maintains a Buy rating on RIOT but lowered the price target from $15 to $13, reflecting the current business uncertainties.

Todaro asserts that the expanding use cases for Bitcoin will stimulate higher daily Bitcoin mining revenues, potentially offsetting the impact of the ‘halving’ — a process where the reward for Bitcoin mining is cut by 50%. This diversification of revenue streams could help to mitigate the impact of reward reductions.

Nonetheless, RIOT’s shares suffered a significant blow in the market, trading down by 14,40% at $10.52 as of the last check on Thursday.