Starboard targets Riot Platforms’ inefficiencies in a plan to unlock billion-dollar growth

Bitcoin mining giant Riot Platforms might be sitting on a goldmine—one it hasn’t fully tapped into yet. Starboard, one of the most aggressive activist investors in the US stock market, has taken a massive position in the company, and according to them, Riot could transform itself by moving focus to hyperscaler demand.

Riot owns and operates huge Bitcoin mining facilities across central Texas and Kentucky and runs a robust electrical engineering division out of Denver.

While the company holds 16,728 Bitcoins and boasts a mining infrastructure of over 1 gigawatt (GW) capacity, it has been underperforming in the stock market, apparently creating a compelling case for Starboard’s intervention.

Riot’s performance in numbers—and why Starboard cares

At $11.55 per share and a market valuation of $3.97 billion, Riot Platforms is no small fish. But this year has been rough. Bitcoin has surged by 130%, yet Riot’s stock dropped 24%, far behind competitors who’ve posted triple-digit gains.

This underperformance points to serious issues in operations and leadership. Starboard isn’t known for sitting quietly when there’s potential to make a company profitable.

With 155 activist campaigns under its belt and an average return of 23.27% on those campaigns, Starboard’s presence alone tells us that Riot might be forced into big changes.

The numbers don’t lie. Riot spent $225 million on selling, general, and administrative (SG&A) costs this year—more than triple the $67 million it spent in 2022.

Much of this expense comes from executives rewarding themselves with stock-based compensation, gobbling up 11.5%, 9.5%, and a ridiculous 32.12% of total revenue over the last three years. Despite this, Riot’s management has produced nothing but losses, with this year’s operating loss surging to $304 million, its worst ever.

The company’s corporate governance is equally shaky. A staggered five-member board, instances of nepotism, and questionable leadership decisions have left Riot with the highest power cost and SG&A expense per Bitcoin mined.

The result was a dirt-cheap valuation compared to industry peers based on metrics like enterprise value to petahash per second (EV/PH/s).

Why Starboard thinks hyperscalers are a trillion-dollar opportunity

Starboard is an investor, so it’s solely here to make money. Its plan for Riot is to get into the hyperscaler market. Hyperscalers are the giants of cloud computing—think Amazon Web Services, Microsoft Azure, and Google Cloud—who run massive data centers to support AI and high-performance computing (HPC).

These companies are desperate for infrastructure, and Bitcoin mining facilities like Riot’s are a perfect match. Starboard pointed out that Riot already has the goods. Its Rockdale, Texas site is the largest Bitcoin mining facility in North America, with 700 MW of capacity.

The Corsicana, Texas facility, set to hit 1 GW when completed, has 400 MW of capacity ready now. These facilities share key attributes with hyperscaler needs: high-performance computing infrastructure, renewable energy access, and scalability.

Competitors have already seized this opportunity. Core Scientific, another Bitcoin miner, inked a deal with CoreWeave, an AI data center startup backed by Nvidia, to lease 500 MW of capacity. That deal is worth $8.7 billion over 12 years and delivers 75-80% profit margins—far better than the margins in Bitcoin mining.

Core Scientific’s stock soared 40% the day after announcing the deal and is up 220% this year. Riot could rake in similar profits. Leasing the unused 600 MW at Corsicana could bring in $600 million annually, nearly doubling its current $313 million revenue.

If Riot converted its entire 1.1 GW of capacity at Rockdale and Corsicana to hyperscaler use, those numbers could triple. Better yet, hyperscalers apparently often cover the cost of building or retrofitting these facilities.

Companies like Hive Digital and Hut 8 are also making the change, with Bitcoin miners that have embraced hyperscalers posting an average year-to-date stock return of 105.8%. Riot, along with other laggards like Marathon Holdings and CleanSpark, sits at -3.4%. The math is simple: adapt or fall further behind.

But Riot isn’t entirely blind to its options. The company recently spent $510 million buying Bitcoin on the open market, financed through convertible senior notes. This hints at a desire to hold more Bitcoin without expanding mining capacity.

But Starboard’s plan offers a better route: use hyperscaler revenue to fund Bitcoin purchases, creating a cycle of cash flow and asset accumulation. A MicroStrategy of some sort.

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