Argo Blockchain Continues To Grow As Bitcoin Price Drops Below $20,000

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A Quick Overview of the Argo Blockchain

Argo Blockchain plc (NASDAQ: ARBK) went public in September 2021, raising approximately $113 million in gross proceeds from an IPO at a price of $15.00 per ADS.

The company operates cryptocurrency mining computers in locations in North America.

Argo seems to be run efficiently and therefore worth a watchlist at its current price of around $4.00, but for now I’m on hold for stock.

Introducing the Argo Blockchain

Argo, based in London, UK, was founded to profitably mine Bitcoin (BTC-USD) and other cryptocurrencies in North America using “primarily renewable, inexpensive energy”.

Management is headed by Managing Director, Peter Wall, who has been with the company since its inception and was previously associated with the Arts Department.

The company currently has thousands of Bitcoin mining machines located in owned and hosted facilities in Canada and the United States.

Management also intends to invest in strategic initiatives beyond mining to diversify its revenue streams through its Argo Labs division.

Argo Blockchain Market and Competition

The global Bitcoin mining market is currently in a state of flux, with recent mining bans in China forcing much of that country’s hash power out of the network while these operators search for a more suitable location. .

The market value of mining depends on the price of Bitcoin, since the majority of the value going to the miner is a function of the current Bitcoin reward rate of 6.25 Bitcoin per successfully mined block.

At a price of $25,000 per bitcoin, for example, annual mining rewards for the entire industry would be around $8.2 billion per year.

Major competitors or other industry participants include:

  • Bit Farms

  • DMG blockchain

  • Hive Blockchain

  • Hut 8 Mining

  • HashChain Technology

  • DPW Holdings

  • Layer 1 Technologies

  • Riot Blockchain

  • Marathon Patent Corp.

  • Others

Recent Financial Performance of Argo Blockchain

  • Total revenue by quarter resulted in the following trajectory over the past 9 quarters:

Total revenue for the 9 quarters

Total revenue for the 9 quarters (looking for Alpha)

  • The gross margin per quarter recently turned negative:

Gross profit for the 9 quarters

Q9 gross profit (looking for Alpha)

  • Selling, G&A expenses as a percentage of total revenue per quarter have risen sharply in recent quarters:

9 Quarter Sales, G&A % of revenue

9th Quarter Sales, G&A % of Revenue (Alpha Research)

  • The operating result per quarter became significantly negative in Q2 2022:

9 quarter operating profit

9th quarter operating profit (looking for Alpha)

  • Earnings per share (diluted) also moved into negative territory in Q2 2022:

Earnings per share over 9 quarters

Q9 earnings per share (seeking alpha)

(All data in the charts above are in accordance with IFRS)

Since its IPO, ARBK’s stock price has fallen 76% compared to the approximately 11.2% drop in the US S&P 500 index, as shown in the chart below:

Share price since IPO

Share price since IPO (Seeking Alpha)

Valuation and other metrics for Argo Blockchain

Below is a table of relevant capitalization and valuation figures for the company:

Measurement (TTM)

Rising

Enterprise Value/Sales

3.65

Revenue growth rate

79.4%

Net profit margin

-10.0%

IFRS EBITDA %

0.4%

Market capitalization

$184,580,000

Enterprise value

$310,020,000

Operating cash flow

-$6,810,000

Earnings per share (fully diluted)

$0.02

(Source – Alpha Research)

For reference, a relevant partial public comparable would be the much larger company Riot Blockchain (RIOT); Below is a comparison of their main evaluation metrics:

Metric

Riot Blockchain

Argo Blockchain

Variance

Enterprise Value/Sales

2.39

3.65

52.7%

Revenue growth rate

372.4%

79.4%

-78.7%

Net profit margin

-118.5%

-10.0%

-91.6%

Operating cash flow

-$73,610,000

-$6,810,000

-90.7%

(Source – Alpha Research)

A full comparison of the two companies’ performance metrics can be viewed here.

Argo Blockchain Commentary

In its latest investor presentation (Source – Argo Blockchain) and financial results announcement (Source – Seeking Alpha), released on August 25, 2022 and August 23, 2022 respectively, management announced revenue of 32 .5 million and adjusted EBITDA of $20.9 million.

Adjusted figures frequently exclude stock-based compensation.

The company saw its mining margin decline in the first half of 2022, to 71% from 81% in the first half of 2021. Argo says this is higher than the 61% margin of its peers (Marathon, Riot, Hut 8, Bitfarms).

ARBK brought its flagship Texas facility online during the quarter, with its total hashing power expected to reach 4.1 exahashes per second by the end of 2022 and the installation of miners in the facility will continue until the end of 2022. first quarter of 2023.

Notably, the company has entered into a supply agreement with Intel to supply its energy-efficient Blockscale hashing ASIC chip as part of the company’s miner rollout in late 2022 and early 2023.

Additionally, management continues to pursue diversified revenue streams through its Argo Labs initiative led by Chief Strategy Officer Sébastien Chalus.

Regarding its financial results, total revenue fell significantly from a high level in the fourth quarter of 2022, as the price of Bitcoin fell sharply.

Gross profit turned negative while SG&A expenses as a percentage of revenue increased and operating losses increased significantly.

For the balance sheet, the company ended the quarter with cash and digital assets valued at $45.4 million and total debt of $143 million.

On valuation, the market beat Argo’s stock as a proxy for Bitcoin’s price, which has fallen sharply in recent months.

In addition, the company’s significant capital requirements for the acquisition of mining computers and the construction of related infrastructure have placed it at a disadvantage in the current environment of rising cost of capital due to rising interest rates. interest.

The main risk to the company’s outlook is a continued bear market for the price of Bitcoin, just as large investments in Bitcoin mining equipment have been made by the company and others in the space.

A potential catalyst on the upside would obviously be a rise in the price of Bitcoin but also a break in the rising cost of capital.

Bitcoin mining stocks have been hit hard lately, but represent potential value opportunities for those bullish on Bitcoin price.

While I am in the bullish camp of Bitcoin, it might take some time to see a significant price increase in the digital asset.

Argo seems to be run efficiently and therefore worth putting on a watch list at its current price of around $4.20, but for now I’m on hold for stock.

About Catherine Wilson

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