Summary Riot Platforms' revenue rose to $376M, driven by Bitcoin's price surge, but Bitcoin production fell, and mining costs surged, impacting profitability. Riot's core operating income remains negative, and high SG&A costs and rising mining expenses raise questions about its long-term sustainability without an appreciation in the Bitcoin price. The company's heavy reliance on stock-based compensation and equity dilution raises concerns about shareholder value. Given its subjectively poor performance, it is unclear why stock compensation is so high. I am bearish on RIOT due to rising costs, reliance on Bitcoin's volatile price, and equity dilution. Since RIOT's price is likely to close to its tangible book value per share, it is not worth short-selling. Although it may not be overvalued on a short-term basis, it should bleed value without significant operational changes. On Monday, Riot Platforms ( RIOT ) reported its Q4 results . Its revenue beat estimates at $376M vs. a $372M consensus, up dramatically from $281M last year due to the sharp rise in Bitcoin's price. That said, the company produced less Bitcoin at ~4.83K in 2024 vs. ~6.63K in 2023, with mining costs surging to ~$32.2K. The firm also finished the year with 17.7K unencumbered Bitcoin, worth approximately $1.57B at today's $88.8K price. The market reacted mixed to the result, which was generally aligned with estimates. RIOT initially rose a half percent but opened around 10% lower Tuesday morning, coming off a 4.5% loss on Monday. The relatively neutral report was heavily offset by a sharp 7% crash in Bitcoin's value, or about 11% since last Friday. Markets broadly fell overnight as Trump confirmed upcoming tariffs on Canada and Mexico following the month-long delay. The Federal Reserve has also confirmed a hawkish pivot due to reemerging inflation concerns. In other words, there is no Bitcoin-specific negative news but generally bearish market news. Since Bitcoin is reacting so heavily to this news, its status as a speculative risk asset and not a hedge against inflation is, to me, confirmed. I have had a bearish outlook on Riot Platforms from late 2021 due to my view that the company's cost of production was excessive. I update my view last July in " Riot Platforms: A Cash-Burning Machine, Even In The Crypto Bull Market ." I had a bearish outlook on RIOT, again due to inconsistent profitability, reliance on dilutive equity sales, and regulatory risk due to its immense power needs in light of ERCOT's power shortages. I also maintained my view that Bitcoin lacks real-world value and is essentially a sink for excess market liquidity. As of Tuesday morning, RIOT's price has remained about unchanged since I last covered it. However, Bitcoin has risen by nearly 50% over the same period. This reiterates my point that Riot has poor exposure to Bitcoin, given its ongoing failure to rebound despite powerful Bitcoin price fundamentals. What will happen in a Bitcoin bear market if RIOT's value fails to improve during ideal conditions? Looking at the technical trend in Bitcoin today and general market liquidity fundamentals, I suspect we may see that answer throughout 2025. Riot's Core Operating Income is Still Negative In 2024, Riot generated $321M from Bitcoin mining revenue and $376M in total revenue. Its direct cost of Bitcoin mining was $189M, while its total gross costs were about $263M, including engineering and other categories. Its gross income was, therefore, around $113M. However, its general sales and administrative costs were $267M, while its depreciation was $212M. So, excluding more volatile income sources like power curtailment ($45M), acquisition costs, changes in equipment value, and changes in Bitcoin fair values and derivatives ($457M and $45M), its core operating income, excluding depreciation was around -$154M, and -$366M if depreciation is included. In other words, if it were not for immense increases in the fair value of its Bitcoin assets, which were mined at much lower costs or purchased, the company would not have positive income in 2024. In Q4, the cost of mining Bitcoin was $42K, up from $35K in Q3 due primarily to higher power costs. Halving also increased costs, with costs jumping from $25K to $35K from Q2 to Q3. This figure includes power costs, miner depreciation, and power curtailment credits. Realistically, the depreciation rate may not translate to actual changes in asset fair values. That said, with the rate at which mining chip technology is improving, natural declines in chip efficiency over time give Riot high ongoing CapEx needs. Still, let's discount the depreciation level by half; assuming asset fair value changes are slower than the depreciation schedule (which is often true), the "adjusted" Q4 mining cost should be about $32K. However, Riot also has an immense SG&A cost of ~$267M, or about $55.3K per coin, given its 4,828 total BTC produced. In other words, Riot's SG&A is staggeringly high. Adding that figure to the adjusted Bitcoin net cost figure, I estimate Riot's effective cost per Bitcoin is about $87K, which is just about where Bitcoin is currently trading. We're also seeing a significant and consistent increase in Riot's SG&A, which was only $67M in 2022. Its net cost of mining Bitcoin was also only $11K in 2022. It only produced a few hundred BTC in 2022, but still, it had much lower costs in 2023, yet produced over 6.6K BTC, much more than in 2024. Technically, the lower production level is primarily the result of BTC's halving last April; however, that still creates a flaw in Riot's business because it's becoming systemically more challenging to produce Bitcoin at cost and scale. Riot's costs, mainly costs for employees, are rising disproportionately to improvements in production (which there are none). We're also seeing a strong upward trend in direct Bitcoin mining costs. Thus, we can estimate that its costs will continue to rise in this trend in 2025, while Bitcoin's price may not continue higher. It is also worth noting that Riot's SG&A is primarily made up of stock-based compensation, totaling $125M in 2024 vs. $32M in 2023. Some analysts and investors write off stock-based compensation as a non-issue because those costs do not hamper cash flows. Although equity compensation may lower liquidity and solvency risks, they're still a direct cost to investors. Further, RIOT's stock price has generally declined while its stock-based compensation has risen, resulting in a sharp acceleration in its dilution rate. See below: Data by YCharts Note this figure is for TTM Q3, and we know its equity compensation was $125M based on its Q4 report . The bulk of its dilution is from direct equity sales to raise cash. Still, the fact is that most of its potential income (aside from the appreciation of inventory assets) is going to stock-based compensation. The dilution rate on that is about 3.7% of its current market capitalization, which is notable. In my view, though not extreme, it is far too high given the stock's poor performance and the company's inability to be consistently profitable. If this compensation is performance-based, I argue that Riot's apparent performance is entirely skewed by appreciation in BTC, which is beyond its manager's control. RIOT investors should know that its overall dilution rate is around 30-40%, primarily due to equity financing sales. Technically, those sales should essentially go toward capital growth assets, which add value to the stock. Even then, given that it cannot clearly profit from Bitcoin mining at current prices and costs, it is unclear if those capital investments are providing value to investors. The Bottom Line The reality is that RIOT's performance is essentially dependent on Bitcoin. Although it has an engineering segment, its costs were slightly higher than revenues ($38.5M in sales vs. $41.7M in costs) in 2024, which is still relatively small. It makes some money by not consuming power during higher power demand periods, but that is only around $33M and is a very volatile segment. On that note, Riot is fighting hard to hide the amount of energy it consumes from being published, but it is probably on the order of a few hundred thousand homes . No doubt, Riot faces some regulatory risk, given Texas' power grid has been prone to outages in recent years. That said, the company argues that it stabilizes the grid by consuming more power during low-demand periods, which may otherwise go unused. Thus, its voracious power needs may encourage electricity investments from Texas utilities. Still, as power storage technology improves , the need for power demand sinks like Riot will likely diminish. Further, there is a good argument that Bitcoin's value is primarily the result of excess market liquidity. In my opinion, Bitcoin's ascendance over the past decade is mainly due to the Fed's monetary easing and rampant asset speculation. However, I do not think Bitcoin fills a functional need, as its transaction efficiency is extremely low compared to fiat currency and most other cryptocurrencies. If we look at the data, we can see that Bitcoin's price will usually rise when speculators are borrowing more money via margin debt or when individual investors have higher (but falling) cash allocations in their accounts. See below: Data by YCharts For example, after the stimulus efforts of 2020, individual investors had high portfolio cash levels and low-margin debts. By 2022, they had deployed that cash and borrowed a tremendous amount via margin debt. The same was true from 2016 to 2018, though to a lesser degree. The same was also true around 2023, as cash allocations were high after the widespread sell-off caused by higher rates in 2022. Today, market participants generally have low cash allocations in their portfolios and high-margin debt. Theoretically, margin debts can continue to rise, and cash allocations may continue to fall, potentially pushing Bitcoin further. Still, the positioning is mainly similar to Bitcoin's peaks in early 2022, 2019, and early 2018. Large bear markets for Bitcoin followed those periods. In my opinion, Bitcoin's slight decline this year may indicate that this historically robust pattern is repeating due to insufficient excess liquidity in markets necessary to sustain the price of (to me) intangible speculative assets. I am bearish on RIOT due to the sharp and ongoing increase in its mining costs. If not for the appreciation in the value of Bitcoin it purchased and mined years ago (at far lower costs), the company's income would still have been quite negative in Q4, despite a sharp increase in Bitcoin's price. In my view, as the company dilutes equity for new investments and stock-based compensation, it will fail to recover those sales through higher-yielding assets. Of course, that depends entirely on the price of Bitcoin. Riot Platforms may be profitable if Bitcoin rebounds and rises to a new high. In my opinion, based on an investor's liquidity profile (high-margin debt and low cash), it is unlikely for Bitcoin to rise today. Bitcoin will also not halve again until 2028, though its impact on Riot is unclear because halving often pushes BTC's value up, making BTC mining twice as challenging. Still, I would not short RIOT because my outlook on it depends on BTC's price, and I'd generally prefer to short BTC outright today. Further, although I doubt Riot's assets have a market value comparable to their book value, that may be the case. RIOT's tangible book value was around $8 in Q3, likely higher in Q4 due to BTC price appreciation. Realistically, RIOT's fair value may be around its current price if it were to sell its assets today, so it is not necessarily overvalued on a short-term basis. Still, it may become overvalued if it continues to operate in a seemingly dilutive manner.
