HIVE Blockchain stock is dead money, PI says

Crypto miner HIVE Blockchain (HIVE Blockchain Stock Quote, Chart, News TSXV:HIVE) is still facing challenging times given the ongoing tough cryptocurrency mining market, says analyst David Kwan of PI Financial.

HIVE Blockchain stock price target cut

In an earnings update on HIVE on Tuesday, Kwan kept his “Neutral” rating but lowered his target price from C$0.45 to C$0.25, which represents a projected return of four per cent at the time of publication.

Vancouver’s HIVE Blockchain, which owns GPU-based and digital currency mining facilities in Iceland and Sweden as well as cloud-based ASIC mining capabilities, delivered its fourth quarter fiscal 2019 financials on Monday.

The past year and a half have not been great for cryptomining, with the price of digital currencies like Bitcoin and Ethereum falling drastically from the highs of late 2017/early 2018. Prices have been climbing once again, however, since March of this year, a time period which did not figure greatly in HIVE’s Q4 report.

The company generated $31.8 million in revenue for the year ended March 31, a 143 per cent increase over fiscal 2018, and mined over 82,000 Ethereum and 1,751 Bitcoin in the process. (All figures in US dollars unless where noted otherwise.)

For the fourth quarter, HIVE’s revenue was $6.2 million (down by 36 per cent year-over-year and down
27 per cent sequentially) and adjusted EBITDA was $0.3 million. HIVE’s 2019 amounted to a loss of $137.8 million for the year, with the company also getting hit with a non-cash impairment charge of $90.9 million related to its data centre equipment, SHA-256 ASIC capacity, and land development rights in Norway.

“We weathered a challenging period for cryptocurrency and blockchain companies as the value of Bitcoin and Ethereum underwent tremendous erosion of value causing a massive fall in the cost of computing equipment. However, we opportunistically added Bitcoin capacity at attractive financial terms,” wrote interim executive chairman Frank Holmes, in a press release.

“We are pleased by the financial results from our 300 Petahashes of Bitcoin mining capacity and the progress we have seen in our Ethereum mining following the restart of Sweden with Blockbase, our new operational partner, subsequent to the end of the 2019 fiscal year,” Holmes said.

HIVE’s fourth quarter was a hit-and-miss affair for Kwan, with the Q4 revenue of $6.2 million coming in below his $7.6 million estimate whereas the adjusted EBITDA of $0.3 million was better than his adjusted EBITDA loss of $2.1 million.

“Gross mining margin was 15.7 per cent, up from negative 26.6 per cent last quarter and better than our negative 13.9 per cent forecast, due to much lower than expected operating and maintenance costs ($5.2 million versus our $8.7 million forecast and less than half of $10.7 million from last quarter). The difference is in part due to the Sweden GPU facility being offline for a material portion of the quarter. These costs should remain low in Q1 for the same reason before returning to more normal levels in Q2 and Q3 FY20,” writes Kwan.

Kwan rates the impact of the quarterly results as “modestly negative” and is now calling for fiscal 2020 revenue and adjusted EBITDA of $41.8 million and $5.5 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $41.6 million and $3.6 million, respectively.