The crypto gurus at HIVE Blockchain (HIVE.V) posted financials for Q4 2018 today, and the documents make for interesting reading.
While the big spotlight shines on revenues ($13m) and margin ($10m) for their mega crypto mining operations, and increases in mining efficiency, the organization’s annual net loss of $26m (of which $17.7m from with the original deal with Genesis) appears to be continuing to weigh on investor confidence.
For the year ended March 31, 2018, HIVE’s gross mining margin was 78%, with revenues per average megawatt of over $2 million. Fourth quarter revenues were produced from an average of 9.84 MW of production capacity, with Sweden Phase 2 coming online at the very end of the quarter, increasing total capacity to 17.4 MW in operation as at March 31, 2018.
That’s fair. The revenues are beginning to look like you’d hope they’d look, though the company is still yet to commence operations on a lot of what it’s paid for so far, which speaks to good things going forward, especially if the 17k Ethereum and 54k Ethereum Classic coins they’ve already mined pick up in value.
My feelings on the crypto space are no secret. Just straight mining is neither the most profitable thing one can do with a data centre, nor the most stable. I’ve scolded Hashchain (KASH.V) for spinning off real blockchain business while focusing (and spending money on) expanding their mining facilities – and with mining-only ASIC rigs at that.
HIVE did mention in their conference call to go with the financials that they see ‘potential for selling hashpower for AI, graphic rendering, etc’ and have researched the possibilities, and may direct said hashpower to this business at some point, however they’re going to focus on mining presently.
I’m conflicted in saying this, because I’m part of a group that has the capability of delivering that phase II business to a large GPU-based crypto mining system (which is what HIVE is), but the time for such moves is now.
Crypto mining may be profitable, at large scale, but it’s not delivering on the promise that HIVE (or KASH, or DMG, or any of the others) was established with, and the currencies being mined today are worth less than they were when the operation kicked off a year ago.
Right now, HIVE is selling some of the coins it’s mining to cover costs, which was not the plan back in the day. Having raised $203m Canadian, there’s long been an expectation that one of the world’s largest crypto miners will be able to get self sustaining in decent time, and if one takes the current share price as a guide, that time has past.
When you look through a company’s MD&A, and you get to the ‘risks’ section, a newbie will always start to freak out, because there are a lot of risks for any public company.
Specific to the Company, the Company may not be able to complete its planned expansion of SHA-256 ASIC miners with Genesis on the terms and timeline currently anticipated, or at all, and as such the Company may not realize on any additional electrical consumption or digital currency from the SHA-256 ASIC miners. Additionally, the Company may be required to sell its digital currency inventory in order to pay for its ongoing expenses (and in particular, expenses to maintain the Company’s facilities), and such sales may not be available at economic values.
Not a fan of any arrangement that uses ASICs, because if crypto dives tomorrow, those become boat anchors. GPUs have other uses, ASICs are circuit boards built to do one thing, with a filthy huge fan on the back to stop it melting from the heat created by the work. Not easy to use one of those to render The Incredibles IV.
Also, the ‘what if’ on the end of that risk statement appears to be already happening. HIVE is selling digital inventory, and is doing so at a time when prices aren’t surging.
So where does this leave us?
HIVE stock is down, and not just in comparison to the heady $7 times when nobody really looked at market cap because Bitcoin was up 40% a day and we were all pricing out property in Panama, but in comparison to last month. And last week.
The company needs to show it can steer its ship in a direction other than ‘straight ahead.’ The plan today seems to be the exact same plan it was a year ago, and the market has changed markedly in the time since. Some of their competitors are no more, some have sold their mining rigs to others and moved on, others are doubling down in the same way HIVE is, and having even worse convulsions on their share price.
The talk has long been that HIVE would hold it’s digital currency because ‘virgin coins’ will be useful to big financial institutions who don’t want to hold crypto that otherwise may have recently been used to ship meth, or Ukrainian women, or weapons to North Korea. Now would be the time for HIVE to tell us which institutions they’ve talked to, if they have.
The company has grown fast and hard – so fast and hard that it’s been tough for the average Johnny Lunchpail to look at the numbers and get a real sense of what value is being mined or, more importantly, what will be mined when facility C, D and E are ready in Njordjergenbergsson. The company should be trying to help clarify.
The value of mining crypto is volatile – that’s great on the upside and ferociously bad on the down, which is where the market is now. So what’s the plan to turn that GPU power to other things, that may not be 24/7 operations but could bring short bursts of heavier profit margin with A-list corporate partners and a solid plan B to roll into should a plan B be necessary.
Other companies have looked to crypto exchanges as an area to not just move into for profit, but for the value it brings a miner in vertical integration terms. Similarly, some (such as DMG Blockchain (DMGI.V)) have picked up B2B blockchain IP, or periphery service businesses that have steady revenue and can plug right in, or may prove bigger than crypto mining down the road. HIVE has explored such things, but not bitten down.
Again, I’m conflicted, partly because I still hold some HIVE stock, partly because I know the people running the company are clever, and partly because I’ve done an immense amount of research on what else is possible, and am frustrated seeing the company essentially say, ‘we raised money to do this one thing, so we’re going to do that one thing, come what may.’
Tech companies MUST pivot as the market and technology pivots. It must be able to react to and embrace what’s next, and to show those who have invested in its promise that they are strong custodians of investor dollars.
Amazon didn’t run servers or sell rice cookers when it started. If all it did today was say ‘we raised money to sell books, so we’re going to sell books,’ it’d have a market cap lower than KASH.
The world’s biggest video game today, Fortnite, started out as a ‘player vs game’ product that nobody was interested in. It pivoted to player vs player option, and is now a mega-beast.
Nokia, before it (momentarily) became the world’s largest cellphone manufacturer, was in the lumber business. Sometimes, when you can’t see the forest for the trees, you’ve got to cut some down.
HIVE, right now, is holding the line and hoping the crypto market hardens up, and that all their value will return. They must do more. You can’t raise $200m, return a $26m loss in year one, and just keep saying, “Trust the process.”
To weather a storm is noble. To build a shelter from the storm is smart.
— Chris ParryDisclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.