Cryptocurrencies have been on the skids for the past few months, which hasn’t been the best news for a stock like HIVE Blockchain (HIVE Blockchain Stock Quote, Charts, News, Analysts, Financials TSXV:HIVE), which is down by about half since its recent November highs. Does the pullback make HIVE a buy right now? That’s unclear, but for those looking to play the crypto-market HIVE may be a good choice, says portfolio manager Jamie Murray.
$1-billion market cap HIVE Blockchain is a cryptocurrency miner with mining operations for bitcoin and ethereum in Canada, Sweden and Iceland. The Vancouver-based company released its third quarter ended December 31, 2021, financials earlier this week, showing revenue up almost 400 per cent year-over-year to $68.2 million with net income also up a big 273 per cent to $64.2 million.
The company credits its move to hold onto its mined currency more recently as helping its financials look so crisp, while business has been aided by expansion efforts such as the construction of a data centre last fall in New Brunswick and buying thousands of new cryptomining machines. The result has been an uptick in coins mined. HIVE reported mining 697 bitcoin and over 7,126 ethereum over the October through December period, while January saw it generate 264 bitcoin and 2,170 ethereum. And HIVE closed on a $115-million bought deal financing round this past November.
“A year ago, we made the conscious decision not to sell our mined cryptocurrency or undertake an expensive financing when brokers were offering capital at 20 per cent discounts or encouraging us to borrow against our BTC and ETH assets at a 12 per cent cost of capital in the scramble by crypto mining companies to purchase more ASIC chips,” said HIVE CFO Darcy Daubaras in a February 15 press release.
“HIVE’s modest equity funding’s were done at prevailing market prices or premiums to the stock price, and this has helped us generate the highest robust returns on invested capital relative to our peers,” Daubaras said.
But a quick glance at the two charts for HIVE and the price of bitcoin over the past five years and one gets the sense of how linked HIVE’s fortunes as a stock are to the ups and downs of the cryptocurrency market. HIVE started jumping in late 2020 just as the price of bitcoin started rising, then pulled back over mid-2021 in step with BTC’s price and then rose and fell again over the back half of 2021 along with bitcoin.
That should spell trouble for the sort of investor who’s looking to take part in the still-developing sector but not be held hostage to the dramatic swings in coin values. But a company like HIVE could still provide some ballast against those ups and downs, says Murray, head of research at the Murray Wealth Group.
“HIVE is an interesting company and the cryptocurrency space is evolving quickly,” said Murray, speaking on BNN Bloomberg on Friday. “We currently don’t have any exposure to it. We still have some hesitations about the ultimate end use of cryptocurrency and what value it provides in the long term. There’s arguments on both sides. Now we’re seeing the NFT boom provide a little bit more air and again there are questions around legitimacy, so there’s pros and cons.”
“So, I think we’re kind of more in the middle. We’re not really leaning too much to one side,” he said.
Murray said HIVE could see short term devaluation driven by cryptocurrency price movements but there are pluses to the company.
“HIVE seems like it’s got a decent track record of mining and running a profitable operation,” Murray said. “So, it definitely could be a home run if the cryptocurrency prices move back to their highs. But we don’t have a strong view either way. We think it’s valued lower versus higher for the the next year.”
“So, it’s not one that we’d be looking at buying but it’s definitely not the worst way to play the cryptocurrency space,” he said.
HIVE Blockchain finished 2021 with a return of 38 per cent, while so far in 2022 the stock is down 24 per cent.
Sequentially, HIVE’s top and bottom numbers in its just-announced third quarter were also up, with the $68.2 million in revenue representing a 30 per cent increase over the previous quarter while the net income of $64.2 million was up seven per cent compared to the previous quarter.
Commenting on the company’s progress, HIVE Executive Chairman Frank Holmes said in the press release, “We wish to again thank our loyal shareholders for believing in our vision to mine both Ethereum and Bitcoin to generate robust cash flow returns on invested capital and we believe our results continue to validate the significant contribution to our strategy to mine both BTC and ETH and HODL as many coins as possible.”