Argo Blockchain continues to rise as Bitcoin’s price falls below $ 20,000

Niséri N

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.

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

Argo appears to be working efficiently and therefore deserves a watchlist at its current price of around $ 4.00, but for now, I’m waiting for shares.

Presentation of the Argo Blockchain

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

Management is led by CEO, Peter Wall, who has been with the company since its inception and was previously associated with the art department.

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

The management also intends to invest in strategic initiatives in addition to mining to diversify its revenue streams through the Argo Labs division.

Market and competition Argo Blockchain

The global Bitcoin mining market is currently in a state of flux, with recent mining bans in China having forced much of that country’s hash power out of the net as these operators seek a more suitable location. .

The market value of mining depends on the price of Bitcoin, as most of the value that goes to the miner is a function of the current Bitcoin reward rate of 6.25 Bitcoin per block successfully mined.

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

Major competitors or other industry participants include:

  • Bit Farm

  • DMG blockchain

  • Blockchain beehive

  • Hut 8 Mining

  • HashChain technology

  • DPW Holdings

  • Level 1 technologies

  • Riot blockchain

  • Marathon Patent Corp.

  • Other

Recent financial performance of Argo Blockchain

  • Total revenue per quarter has driven the following trajectory over the past 9 quarters:

Total revenue for the 9 quarters

Total revenue for the 9 quarters (looking for Alpha)

  • Gross margin by quarter has recently turned negative:

Gross profit for the 9 quarters

Gross profit Q9 (looking for Alpha)

  • Selling and G&A expenses as a percentage of total revenue per quarter have increased dramatically over the past few quarters:

9 Quarter Sales, G&A% of revenues

Q9 Sales,% G&A of Revenue (Alpha Research)

  • The operating result by quarter turned significantly negative in the second quarter of 2022:

Operating profit of 9 quarters

Q9 operating profit (looking for Alpha)

  • Earnings per share (diluted) also moved into negative territory in the second quarter of 2022:

Earnings per share over 9 quarters

Earnings per share for the 9th quarter (alpha search)

(All data in the graphs above are IFRS compliant)

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

Share price from the IPO

Share price from IPO (Seeking Alpha)

Evaluation and other metrics for Argo Blockchain

Below is a table of capitalization and valuation data relevant to the company:

Measurement (TTM)

Increasing

Business value / sales

3.65

Revenue growth rate

79.4%

Net profit margin

-10.0%

IFRS EBITDA%

0.4%

Market capitalization

$ 184,580,000

Company value

$ 310,020,000

Operating cash flow

– $ 6,810,000

Earnings per share (fully diluted)

$ 0.02

(Source – Alpha Research)

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

metric

Riot blockchain

Argo blockchain

Variance

Business 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.

In its latest presentation for investors (Source – Argo Blockchain) and in the announcement of financial results (Source – Seeking Alpha), published on August 25, 2022 and August 23, 2022 respectively, the management announced a turnover of 32.5 million $ 20.9 million and adjusted EBITDA of $ 20.9 million.

Correct figures often exclude share-based netting.

The company saw its mining margin decrease 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 put its flagship facility in Texas online during the quarter, with its total hashing power expected to reach 4.1 exahash per second by the end of 2022 and the installation of miners at the facility will continue until the end of. 2022. first quarter of 2023.

Specifically, the company entered into a supply agreement with Intel to supply its energy-efficient Blockscale Hash ASIC chip as part of the company’s miners launch in late 2022 and early 2023.

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

As for financial results, total revenue dropped significantly from a high level in the fourth quarter of 2022 as the price of Bitcoin dropped dramatically.

Gross profit became negative as general, administrative and sales 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 worth $ 45.4 million and total debt of $ 143 million.

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

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

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

A potential upside catalyst 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 they represent potential value opportunities for those who are bullish on the price of Bitcoin.

While they are in the Bitcoin bullish field, it may take some time to see a significant rise in the prices of the digital asset.

Argo seems to be working efficiently and so it’s worth putting in a checklist at its current price of around $ 4.20, but for now, I’m waiting for action.

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