Taoping Inc. (NASDAQ: TAOP) is a blockchain technology and smart cloud services provider. The Company is dedicated to the research and application of blockchain technology and digital assets and continues to improve computing power and create value for the encrypted digital currency industry. 

Key highlights

• Higher revenues: The company recorded USD 6.4 million in sales for the first six months of 2021, up from USD 3.7 million in the previous corresponding period, representing a 71.9% rise. The rise was mostly due to increased sales of high-end data storage servers and software, as well as the addition of advertising income from the acquisition of Taoping New Media Co., Ltd.
• Elevated gross profit, but as a percentage of revenue it declined: In the reported period, the company's gross profit was USD 2.1 million for the first six months of 2021, an increase of USD 0.6 million over the previous year's pcp of USD 1.5 million. However, as a proportion of sales, it fell to 33.3% during the period, down from 39.3% in pcp. The fall in total gross margin was caused mostly by lower margins in bitcoin mining and advertising.

• Increase in cash used in operating activities: The company reported USD 16.3 million of cash used in operation in the reported period, which stood much higher compared to USD 1.1 million in pcp.

Risks associated with investment

Many risks are linked with the company, which might jeopardize its operations and financials. Since the company is in the technology sector, it needs continual technical upgrades; if it is unable to innovate and offer competitive new products and services, its future operations may suffer. Furthermore, it does not have exclusive relationships with clients, and it may lose their contracts if they are dissatisfied with its products and services or for other reasons.

Financial overview of Six Months Ended June 30, 2021 (In USD)

Source: Company Filing

• The company’s revenue increased to USD 6.4 million in the reported period against USD 3.7 million in pcp, primarily due to an increase of the sale of high-end data storage servers and software.
• On the back of higher administrative expenses, the company posted loss from operations at USD 13.9 million in the reported period compared to the lower loss of USD 7.5 million in pcp.
• Primarily due to above stated reason along loss on equity method investments, the company posted much elevated net loss of USD 14.0 million compared to USD 7.6 million in pcp.

Stock recommendation

In 2021, the company took a number of strategic initiatives, including investing in the digital asset market and acquiring Taoping New Media. The additional initiatives resulted in a USD 2.7 million revenue gain year over year for the first six months of 2021. It purchased more cryptocurrency miners to increase mining capabilities, and it anticipates Ethereum's processing power to reach a total of 1000GH/s by the end of 2021, generating around 700 Ether per month by then. In addition to the Hong Kong facility, it is building a new data center and cryptocurrency mining locations in Kazakhstan. On the valuations front the company witnessed growth in its top-line but could not sustained that growth and reported higher operating loss and net loss. Hence, given the above fact, we recommend a “Watch” rating at the current market price of USD 1.24 at 10:37 AM, New York Time on March 15, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 15, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

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