Summary HIVE's mining operations are diversified in Canada, Iceland, and Sweden, taking advantage of attractive power costs and renewable energy sources. The average cost of production per Bitcoin for HIVE was $13,599 for the quarter ending December 31, 2022, representing a 37% increase from the previous quarter. Despite the recent rebound in crypto, HIVE's stock performance has lagged behind Bitcoin tokens, suggesting that investors may find more value in the token or other mining companies. It has been a turbulent year for Bitcoin ( BTC-USD ) mining companies like HIVE Blockchain ( HIVE ). HIVE is one of the smaller miners in the industry, but notable differences made it an interesting pick going into a macroeconomic slowdown. As expected, the massive selloff in Bitcoin brought the stock down to historic lows, but with the Federal Reserve making notable progress in its fight against inflation and a possible pasta interest rate increase on the cards, the stock does not seem to be performing as well as one would like. Today, will look at HIVE Blockchain and see if the company has underlying problems or if the stock lacks publicity. Data by YCharts Miners Getting Hammered One of the age-old debates with Bitcoin mining company investments has been whether it is better to buy the token or the mining company's stock. There are essential dynamics to remember when making this deliberation. Investors often point to the fact that the Bitcoin supply is being diluted daily, which is true. But as most investors know, Bitcoin's difficulty rates increase as more tokens are mined. HIVE Blockchain Technologies On the other hand, mining companies tend to rely on financing and secondary offerings to fund operations as they wait for advantageous prices to sell their tokens. As you can see below, HIVE has been no exception to this rule. It is important to note that this is understandable. If one is expecting outsized returns for Bitcoin, then it makes sense for the company to offer shares in the short term to preserve its treasury and reap future rewards. Data by YCharts While HIVE has been selling Bitcoin to help fund operations, it also benefits from building out its comprehensive mining fleet in low-cost regions. As a result, production figures have improved significantly over time, and the company can now sell tokens while maintaining a good treasury. Below, we can see the production figures from November through January. Month Bitcoin Produced Average Bitcoin per Exahash Income from Grid Balancing ((USD)) Additional Information November 2022 264 105 - 262 HIVE BuzzMiners received; 2,130 Bitmain S19j Pro Antminers purchased December 2022 213.8 113.2 3,150,000 2,050 Bitmain S19j Pro miners installed; 1,423 HIVE BuzzMiners installed; 4,752 BTC produced in 2022 January 2023 260 110 180,000 6,700 new ASIC miners deployed; 3,200 BuzzMiners installed; 3,570 S19j Pro miners fully deployed Author's Estimates In fact, one of the differentiating factors with this company is that they have managed to stabilize production at elevated levels with minimal disruptions, which should be welcome for investors. Still, we would like to see growth as other mining companies like Riot Platforms ( RIOT ) and Marathon Digital ( MARA ) are consistently managing to produce at a higher level. Bitcoin Production Landscape: Company Ticker March (2023) February (2023) January (2023) December (2022) Marathon Digital (NASDAQ:MARA) 825 683 687 475 Bitfarms (NASDAQ: BITF ) 424 387 486 496 Riot Platforms (RIOT) 695 675 740 659 CleanSpark (NASDAQ: CLSK ) 598 576 697 464 HIVE Blockchain (NASDAQ:HIVE) 260 213.8 Core Scientific ( CORZQ ) 1360 1527 1435 Argo Blockchain (NASDAQ: ARBK ) 162 168 147 Iris Energy (NASDAQ: IREN ) 173 156 172 123 TeraWulf (NASDAQ: WULF ) 233 143 157 125 Average Bitcoins mined 491.3333333 517.75 308.6738 261.27875 Author's Estimates The table below shows that Bitcoin production trends have remained relatively stable for the company over a period of time. This aligns with the industry's overall trend lately, where mining companies prioritize capital preservation and solvency over increasing their fleet size, as was the case a year or two ago. HIVE Blockchain Technologies It is also important to note that the company has been earning substantial revenue from grid balancing. It is not ideal to be speaking about revenue from grid balancing from an investment standpoint. Ideally, investors will want to hear about surging production numbers and, most importantly, tokens being sold at elevated prices. But the company seems to be doing its best with the cards it has been dealt, which has recently strengthened the balance sheet. One could argue that this is a result of the trade-off made by management, where they seem to have prioritized the long-term future of the company over short-term sensational headlines. When we think about Bitcoin mining companies over the past few years, we think about companies who have done just about anything to increase to mining fleet due to surging Bitcoin prices. A part of this effort has seen companies rely on external financing to maintain a large fleet and general corporate responsibilities. The problem is that the debt can become burdensome if there is a sustained negative move in Bitcoin prices, as we have seen recently. HIVE may be unable to match the production numbers of some of the more popular names in the industry, but they have been very responsible with the amount of debt they have taken on. We can see below how the company stacks up against its competitors in the space. Riot Platforms is still one of the best in this regard, but HIVE is not far behind and probably deserves more recognition. Data by YCharts When we look at what happened with Core Scientific (CORZQ), this is certainly a respectable position to have. These production achievements have made for some polarizing earnings reports. On the one hand, the management team has clearly made some great progress on production numbers and has even managed to keep direct production costs low at roughly 13.6K per token. I always like to see miners keep direct costs as close to $10,000 as possible. However, with surging energy prices causing challenges for the entire industry late last year, I think that's a great number despite the 37% increase from the same quarter in the year prior. Key Data Points: Data Point Value Quarterly Revenue $14.3 million Gross Mining Margin $3.6 million Adjusted EBITDA $1.5 million HPC Revenue Strategy Annual Run Rate $1.3 million Bitcoin Mined in Recent Quarter 787 Bitcoin Mined in the Same Quarter Last Year 697 YoY Bitcoin Production Increase 13% Average Cost of Production per Bitcoin (excl. SG&A) $13,599 Cost of Production Increase from Last Quarter 37% But on the other hand, we have seen some truly terrifying EPS numbers. This has been standard across the industry since impairment changes and the crypto crash. Seeking Alpha HIVE prides itself on efficient operations, and we can see that admin costs have been controlled despite notable growth for the company. HIVE Blockchain Technologies As one would expect, revenue fell significantly with Bitcoin prices, but the reverse would also be true if the company makes it to the other side of this crypto winter, which makes what the management team has been achieving even more important. HIVE Blockchain Technologies Challenges in the Future It is unlikely that the crypto market is completely out of the woods despite the strong rebound. People have been prematurely celebrating the end of inflation due to the recent achievements of the Federal Reserve, but it is likely that interest rates to remain elevated throughout the end of calendar year 2023. The Federal Reserve has made it clear that rate cuts are not in their base case for the end of the year though I suspect we may see one or two cuts due to the recent banking crisis and the general unwillingness to spark a needless recession. If inflation were to become sticky, forcing the Fed to do more damage to the economy to cool down prices, then that would be catastrophic for smaller growth stocks like HIVE. HIVE's fleet is also geographically located in Canada, Iceland and Sweden. Many countries have been facing energy crises due to the Russia - Ukraine conflict but interestingly, Iceland and Sweden derive a significant portion of their energy supply from renewable sources, which has made them a great pick for miners. This was not by accident, the HIVE management team has been deliberate about where they deploy their miners, and investors are now seeing some benefits from this strategy. Valuation and Forward-Looking Commentary We can see in the charts below that the stock is trading near historic lows, but the valuation makes sense because of the widespread uncertainty in the crypto mining industry, Bitcoin prices and the macroeconomic outlook in short to medium term. Data by YCharts One of the major concerns gripping the industry right now is liquidity. Following the issues that have hit Core Scientific, which was among the biggest producers in the industry, there is a feeling that no Bitcoin mining company can be completely safe right now. As I mentioned earlier, HIVE is one of the more responsible names in the industry, but it is not immune to the profound impact of a prolonged depressed crypto bear market. Operating losses can pile up quickly as energy prices, the need to sell Bitcoin holdings, and a depreciating mining fleet can take a toll. The good thing is a strong upward move in Bitcoin will solve all the problems that matter if these companies can maintain a good treasury. Nevertheless, there isn't an awful lot of cash here in the event that HIVE has to weather an extremely long crypto bear market. Data by YCharts We can also see that the stock has not performed reasonably well despite the strong rebound in crypto. In fact, Bitcoin tokens have outperformed the stock, which is problematic when you consider the additional risks associated with the miners like dilution, regulation etc. Data by YCharts This is perhaps the most detrimental issue for HIVE. I like to think of Bitcoin mining companies as call options on their underlying token where theta decay is, in essence, the dilution. For this reason, I would expect negative variance when the token is going through a turbulent stint but would expect the stock to outpace the token on strong rebounds. We are not seeing this dynamic right now, which for me, suggests it is better to buy the token or another mining company. The Takeaway In closing, HIVE has demonstrated efficiency in its operations and strategic choices in its geographic locations, allowing it to navigate the challenges faced in the crypto-mining industry. Despite its achievements, HIVE's stock has not performed well during the strong rebound in the crypto market. This underperformance, combined with the risks associated with mining companies, such as dilution and regulation, is prohibitive right now. I respect what the management team is doing, but we aren't seeing the stock reflect that just yet. The stock likely needs a bigger move in Bitcoin to attract more attention to the space, which may not come soon. This was one of my picks for a recession, and in many ways, it still is, but for now, there a no great reasons to buy or sell if you're bullish on Bitcoin. I rate the stock a hold.
