Argo Blockchain Expanding, But Lacks Mindshare In US Market (ARBK)

U.K.-based Argo Blockchain (NASDAQ:ARBK) has shown major improvement in its performance, based upon its latest earnings report, as the dual-listed firm seeks to boost recognition among American investors interested in Bitcoin mining companies.

With access to capital markets and initiating further expansion of its mining capacity, the company is poised for further growth. Like its peers, it’ll do even better than it has been once the price of Bitcoin finds a bottom and sustainably reverses direction.

In this article we’ll look at some of its recent earnings numbers, how it’s going to raise capital going forward, a major weakness it has in comparison to its Bitcoin mining competitors and starting operations at its Texas facility.

Latest numbers

ARBK recently released its full-year results for 2021, and the company showed solid growth during the reporting period.

Revenue jumped to $100.1 million, a 291 percent year-over-year gain. That compares to the $25.6 million in revenue generated in full-year 2020. Positive catalysts there were an overall increase in the price of Bitcoin, the major increase in the hashrate of ARGO, and a short-term decline in difficulty in regard to the Bitcoin network.

Mining margin also jumped from 41 percent to 84 percent, primarily driven by higher Bitcoin prices and the decline in global hashrate related to China banning Bitcoin mining in the first half of 2021.

These positive catalysts resulted in EBITDA soaring from $10.3 million in 2020, to $71.4 million in 2021, a gain of just under 600 percent. Net income came in at $41.5 million, up 2,033 percent from the $1.9 million generated in 2020. At the end of 2021 ARBK had cash and digital assets of $124.9 million. Of that, $16 million was in cash. While I would have preferred to see more cash, its access to capital, as shown in the section below, helps alleviate some of my concerns there.

The company mined a total of 2,045 Bitcoin in 2021, down 17 percent from 2020. Most of that was attributed to the Bitcoin halving, which cut the block award in half. As of March 2022, the company reported an increase of Bitcoin held to 2,700. With the ongoing decline in the price of Bitcoin, the value of those is of course declining. While the assumption may be that ARBK will be under pressure because of the plunge in the price of Bitcoin, in reality, the price was down even more in the middle of 2021, so comps, at least where the price of Bitcoin stands today, are still favorable. Even if it drops more, the company could have a good 2022 if the price of Bitcoin rebounds in the second half of the year.

It does have some big price shoes to fill because of the big upward movement in the price of Bitcoin in the middle of February 2021 to early May 2021, where it moved in a range of about $50,000 to almost $60,000. After it corrected, it once again swung above $50,000, ending up over $67,000 in November 2021, its record high. The point there is the average for 2021 may be hard to beat if the highs in 2022 don’t approach those levels, which is definitely a possibility.

Access to capital

One strength of ARBK is its ability to raise capital. In the Q1 2021, it raised $66.4 million via private placement.

It raised another $127.9 million in Q3 when it went public on the Nasdaq Global Select Market.

In Q4, another $40 million was raised in unsecured debt by issuing senior notes traded on the Nasdaq.

More recently, its wholly owned subsidiary Argo Helios secured loan amounts of $70.60 million from NYDIG ABL. The loans were secured by mining equipment and contracts entered into to acquire the equipment.

This confirms managements’ assertion in its earnings report that it was going to use debt and/or selling of Bitcoin holdings to raise capital going forward. That means, for now, it’s not going to dilute shareholders by increasing the number of shares in the company.

Launching operations at Helios

Near the end of April 2022, the company upwardly revised its hashrate guidance from previous expectations of 3.7 EH/s, to 5.5 exahash per second of hashrate by the end of 2022.

A big part of the upward revision will come from the launch of operations at the Helios mining facility in Dickens County, Texas. That will boost the company’s computer power by 243 percent, to the aforementioned 5.5 exahash per second rate. Further out, ARBK it will use 600MW more to achieve 20 EH/s. How fast this plays out will be determined by when it receives delivery of the 20K Bitmain S19J Pro mining machines it acquired in Sept. 2021. Expectations are they’ll be delivered from May 2022 through October 2022. That suggests the latter quarter could be a good one for ARBK, depending on where the price of Bitcoin is at. That said, it’ll still take a few years to reach full capacity at the facility.

One major concern

The key concern I have as far as trading ARBK goes is that it doesn’t have a lot of liquidity on the Nasdaq, usually trading between 100,000 and 200,000 shares a day.

When I was considering taking a position in the company, I looked at the volume as measured on a candlestick chart, and it was usually trading under 1,000 shares per candlestick. That means getting out could be a problem if I held even a relatively modest number of shares.

For example, even 100 shares could represent 20 percent of the market if only 500 shares were exchanging hands at any one time. Even a thousand shares would be 10 percent of the market if investors were holding 100 shares.

This easily limits my interest in a position because it lowers the number of shares I’m willing to hold because of the lack of liquidity at this time. This is why I say ARBK needs to gain some mindshare on the Nasdaq if it wants to attract a larger number of investors.

I trade a lot of Bitcoin miners, and by far, ARBK has the lowest number of shares traded in a day. The question for me then is this: Why trade ARBK when I can trade a more liquid company?

I also think ARBK is still trading at a hefty price in comparison to many of its peers. While the company is now on my radar, I’m looking for a lower entry point and an increase in volume.

Conclusion

ARBK does attract my interest generally. I believe it could have some potential as the price of Bitcoin drops, which will put downward pressure on ARKB’s share price.

When investors start to get more interested in trading Bitcoin miners because of the belief Bitcoin is close to a bottom and reversal, it’s highly probable ARBK could attract more investors, which of course would increase its volume.

There’s no doubt in my mind ARBK will move up in correlation to the price of Bitcoin when sentiment improves, but for now, there simply isn’t enough differentiation from other Bitcoin miners to justify taking a position.

That’s too bad because it actually deserves more interest from investors based upon its performance, but because it hasn’t become well known to American investors yet, it continues to languish in obscurity and illiquidity. I wouldn’t take a position now, but it’s worth having on your watchlist when and if the time comes that it attracts more volume as a result of renewed interest in Bitcoin miners.