Hive Blockchain Technologies Ltd. Stock Profile

HVBTF:TSXV

I am wading into the blockchain waters this week. I have limited knowledge of what blockchain is so this is a good opportunity to get started on the research in this area. There is so much information on blockchain, cryptocurrencies, bitcoin, etc. and I am obviously not going to attempt to cover it all in this blog post! I will give a brief overview of what some of these terms are and mean to investors like you and me. 

At its heart, blockchain is a publicly available ledger where transactions are recorded and then verified anonymously. Once the information is put into the ledger, it becomes part of the “chain” of information and cannot be altered. Started initially to manage cryptocurrencies such as bitcoin, it takes the place of a traditional bank, which acts as a clearing house for transactions. If you remove the middleman bank, the transaction can proceed between two parties without fees and currency exchanges and so forth. This remains, by and large, the main use for the blockchain currently but that will change quickly as more uses arise.

Bitcoin as you are aware exists electronically; it is not like a physical piece of gold. You can transfer your ownership of bitcoin to another owner through a ledger entry in the blockchain. Because the ledger or blockchain is not located on just one person’s computer but on a number of decentralized nodes or computers, it won’t crash and the blockchain itself will stay stable and secure. How is the legitimacy of the transaction confirmed? How can both parties in the exchange be satisfied in the verification of the transaction? This is where “mining for bitcoin (or other cryptocurrency)” comes into the picture. Bitcoin miners have computers set up to collect transaction information and verify it into a single block that gets added to the blockchain. Each new single block has a record of the previous block and a timestamp. Confirmation of the blockchain, or the solving of the equation, is what the miner is doing on its computer and is rewarded with bitcoins or another incentive for adding to the chain. The miner is rewarded for completing this necessary task in the blockchain. Once a block is in the chain, it is impossible to hack or edit unless the owner of the information has the “key” allowing it to make edits on the information it owns. These are the bare essentials of blockchain.

The great potential of this technology lies in its multiple uses. Specifically, it is the use of your personalized key that unlocks a lot of the potential of blockchain. I like the following examples of where blockchain could impact real life as set out in this article by Bernard Marr on the Forbes website:

1.     A digital medical record: the public has an interest in keeping this record unedited so as to reflect the true medical situation of a patient. The doctor and patient would each have a key to this record. If either party chooses to share it with a third party, such as a specialist, they could be given the key to the record in order to make additions or edits, etc. While versions of this can be done now electronically or by paper, the blockchain would give the power of the information and the key to you in a blockchain that is incorruptible. You would own the information, and be able to access it, in a manner not previously available to you.

2.     Smart contracts: computer code could execute when both parties to a contract enter their respective keys thus creating a contract. An example of where this could be useful is, as the example in the article covers, home electricity contracts. When you reach a certain number of wattage hours, a blockchain would take value from your account and give it to the electrical company without the meter reader or any other traditional billing process.

3.     Medical instruments: a doctor or patient issuing a key to a blood glucose monitor could automatically and securely record the blood sugar level and then communicate with the insulin delivery device to inject more or less insulin.

4.     Other uses: controlling how many time someone could access, share or copy a piece of intellectual property or create fraud proof voting systems.

The uses are endless and as interested investors, we would be well served to do more research into the potential uses as they represent investment opportunities.

·      As stated many times on this site, I, nor ZSM Creative Inc. operating as The Capital Pink, are financial advisors and have no financial accreditations. I am applying some basic evaluation tools to this stock along with some commentary but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How Do I Evaluate a Stock? (Part One) for information on where to find the ratios and numbers online). Please read my Legal Disclaimer.  Also, I do not own Hive Blockchain Technologies Ltd. stock and am not affiliated with them in any manner.    

What is Hive Blockchain Technologies Ltd. (Hive)?

There are a few publicly traded blockchain companies currently operating. I decided to profile Hive as its management and Board of Directors appear to have melded general business experience with blockchain experience (ie. the partnership with Genesis Mining, see below) which is a good scenario in these uncharted waters. Hive is a new company that owns a cryptocurrency mining facility in Iceland that was completed in May 2017. It produces mined cryptocurrency such as Ethereum around the clock. It is partnered with Genesis Mining Ltd. (Genesis), Hive’s largest shareholder, who runs the day-to-day operations. Genesis owns 26% of Hive and it is the world’s leading cryptocurrency hashrate (a hashrate is the speed at which the computer is completing the bitcoin coding operation – the faster the completion, the sooner you are able to receive the reward and move on to the next block) provider. Genesis is providing the blockchain experience to Hive’s general business experience. Hive’s CEO, for example, has many years in investment banking in the technology area. Hive intends to focus its resources on existing and new cryptocurrencies as they become more profitable to mine – meaning, they will direct the computers to mine for whatever currency is the most profitable at the time.

Other points regarding Hive:

·      First publicly listed crytopcurrency miner providing the capital markets (financial markets where capital is raised for companies through stocks, bonds or other such types of investments, eg. Is the stock market) opportunity to blockchain and cryptocurrencies. For people like you and I, getting into this industry seems daunting and so investing in a company that is already operating may be the only and easiest way to get involved (recognizing research always needs to be done before buying anything!!);

·      Owns two cash flow positive GPU-based mining facilities in Iceland – a stable political jurisdiction with access to low cost power;

·      Genesis is the day to day operator of the business;

·      Three elements are needed to remain competitive as the blockchain industry matures: 1. Hardware 2. Software and 3. Green Energy. Electricity costs are the largest cost associated with running a mining operation. Massive energy is required to run the computers completing the transactions. This is the reason such operations are suited to cold climates (like Iceland) as the cooling off of the computers running the equations is required as is green energy to power the computers themselves. A fast and reliable internet connection is also part of the equation; and

·      Hive has the option to acquire two more mining facilities in Iceland and Sweden from Genesis.

As I said above, I like the fact that Hive is a meld of blockchain experience with general business experience. However, with this being such a new industry, it is tough to determine who is the best public company operating in this space now and in the future.  

What is Hive’s stock doing?

As Hive is such a new company, the stock analysis this week will have to take a different form. Few of the traditional ratios or measurements are available yet online given it is such a new company with no numbers to input in the ratios. This is a growth company of the highest degree! Investors in this company are betting on a huge growth in the future. This is the exact opposite of a stable, large, time proven company such as Coca Cola. The risks of a blockchain company are completely different than almost anything you could analyze. Even the way they make money (among other ways, by stockpiling cryptocurrency) is unlike any other businesses.  

We do have a bit of financial reporting information as February 28:

Share price: $1.43 USD

One share of Hive would cost you $1.43 USD.  The price over the past 52 weeks has ranged from $0.06 to $5.25 USD.

Price to Earnings (P/E): 5.32 (Consensus Forward)

Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued. The consensus forward P/E is a rather low 5.32.

Earnings per Share (EPS): -0.17 TTM (Trailing Twelve Months)

This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential. Hive, again not surprisingly, has negative earnings at this point so the EPS is in a negative position.  

Market Capitalization: $392 Million

Hive would be considered a small cap stock.  Recall that small cap stocks usually have the most room for growth as opposed to large, established, stable large cap companies and medium fall somewhere in the middle.

Price to Book (P/B): 27.25

This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. It is the value of the stock in comparison to the underlying assets of the company. Thus, a low P/B relative to the stock price suggests you are not paying too much for what would be left over after such a sell off.

Yesterday, Hive released its third quarter (every company has its own financial reporting year, it could be Jan 1 to Jan 1 or any other date, so the third quarter would be a three month time period immediately preceding the final fourth quarter) financial results yesterday. Here were the highlights:

·      Expanded the mining operation in Iceland to more megawattage;

·      Two more data centres are to be built by September 2018 in partnership with Genesis;

·      Raised more money to finance this growth;

·      Revenues were just over $3 million with net income at $149, 724 for this period; and

·      Accumulated and held over $5 million in various cryptocurrencies.

Hive has lots of work to do in this developing industry. It intends to make money by selling some of its mined coins to cover future expenses while at the same time keeping an inventory of coins to benefit from price appreciation or price fluctuations.  Finally, one last point, what are the risks facing Hive? Price fluctuations in cryptocurrency prices, flaws in the code or hacking, fraud or security failure of crypto exchanges, increased competition, profit margins becoming uneconomic due to costs and obsolescence of hardware and equipment are all risks.

I will definitely keep watching this company to see how this unfolds. Lots of uncertainties but definitely a space and company to track! 

 

***Top photo courtesy of Dmitri Popov on Unsplash