Argo Blockchain Continues Buildout As Bitcoin Price Tumbles Under $20K

A Quick Take On Argo Blockchain

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

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

Argo appears to be efficiently-managed so is worth putting on a watch list at its current price of around $4.00, but for now, I’m on Hold for the stock.

Argo Blockchain Overview

London, UK-based Argo was founded to cost-effectively mine Bitcoin (BTC-USD) and other cryptocurrencies in North America using “predominantly renewable and inexpensive power.”

Management is headed by Chief Executive Officer, Peter Wall, who has been with the firm since inception and was previously Partner at The Art Department.

The firm 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 via its Argo Labs division.

Argo Blockchain’s Market & Competition

The global market for Bitcoin mining is currently in significant flux, with the recent bans on mining in China causing a large amount of that country’s hashpower to exit the network while those operators look for a more suitable location.

The market value for mining depends on the price of Bitcoin, since the majority of 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, the annual mining rewards for the entire industry would be approximately $8.2 billion per year.

Major competitive or other industry participants include:

• Bitfarms

• DMG Blockchain

• Hive Blockchain

• Hut 8 Mining

• HashChain Technology

• DPW Holdings

• Layer1 Technologies

• Riot Blockchain

• Marathon Patent Corp.

• Others

Argo Blockchain’s Recent Financial Performance

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

• Gross profit by quarter has recently turned negative:

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

• Operating income by quarter has turned substantially negative in Q2 2022:

• Earnings per share (Diluted) have also turned into negative territory in Q2 2022:

(All data in above charts is IFRS)

Since its IPO, ARBK’s stock price has fallen 76% vs. the U.S. S&P 500 Index’s drop of around 11.2%, as the chart below indicates:

Valuation And Other Metrics For Argo Blockchain

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

Measure (TTM)	Amount
Enterprise Value/Sales	3.65
Revenue Growth Rate	79.4%
Net Income 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

Click to enlarge

(Source – Seeking Alpha)

As a reference, a relevant partial public comparable would be the much larger firm Riot Blockchain (RIOT); shown below is a comparison of their primary valuation 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 Income Margin	-118.5%	-10.0%	-91.6%
Operating Cash Flow	-$73,610,000	-$6,810,000	-90.7%

Click to enlarge

(Source – Seeking Alpha)

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

Commentary On Argo Blockchain

In its last investor presentation (Source – Argo Blockchain) and financial results announcement (Source – Seeking Alpha), published August 25, 2022 and August 23, 2022, respectively, management disclosed revenue of $32.5 million and adjusted EBITDA of $20.9 million.

Adjusted figures frequently exclude stock-based compensation.

The firm saw a drop in its mining margin in the first half of 2022, to 71% from 81% in H1 2021. Argo says this is superior to its peers’ (Marathon, Riot, Hut 8, Bitfarms) margin of 61%.

ARBK brought its flagship Texas facility online during the quarter, with its total hashpower expected to reach 4.1 exahashes per second by the end of 2022 and installation of miners at the facility to continue through Q1 2023.

Notably, the firm has reached a supply agreement with Intel to provide its Blockscale energy-efficient hashing ASIC chip as part of the firm’s miner rollout in the latter part of 2022 and early 2023.

Also, management continues to seek diversification revenue streams through its Argo Labs initiative run by Chief Strategy Officer, Sebastien Chalus.

As to its financial results, total revenue has fallen significantly versus a high mark in Q4 2022 as the price of Bitcoin has dropped sharply.

Gross profit has turned negative while SG&A expenses as a percentage of revenue have risen and operating losses have increased substantially.

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.

Regarding valuation, the market has beaten down Argo’s stock as a proxy for the price of Bitcoin, which has dropped sharply in recent months.

Also, the company’s considerable capital requirements in acquiring mining computers and constructing the related infrastructure have placed it at a disadvantage in the current environment of rising cost of capital due to interest rate hikes.

The primary 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 firm and others in the space.

A potential upside catalyst would obviously be a Bitcoin price rally but also a pause in the rise of cost of capital.

Bitcoin mining stocks have been hard hit lately but represent potential value opportunities for those who are bullish on the price of Bitcoin.

While I’m in the bullish Bitcoin camp, it could take some time to see a meaningful price rise for the digital asset.

Argo appears to be efficiently-managed so is worth putting on a watch list at its current price of around $4.20, but for now, I’m on Hold for the stock.