The crypto industry is growing by leaps and bounds, with newer application areas and industry uses being devised continuously. From a single currency, Bitcoin (BTC-USD), the crypto world has now grown to over 10,000 currencies with a market size of roughly $2 trillion dollars.
Although regulators around the globe have been cautious about crypto currencies, regulations are gradually evolving as the masses continue to adapt blockchain technology at a faster pace. This adoption is even faster in countries where fiat currency gyrations are a challenge, such as Argentina, Russia, Iran, Cuba, and Turkey.
Meanwhile, piqued interest from younger investors is driving adoption in major markets such as India, where more people are investing (or trading) in crypto than in shares of listed companies.
The question remains, how can they bite into the crypto pie without having to worry about wallets, digital keys, or the risk of stringent regulatory actions?
One answer is to invest in companies that are diving deep into application areas of blockchain or are focused on mining crypto themselves.
Let us take a deeper look at two major crypto-mining companies, Riot Blockchain (RIOT), and Hive Blockchain (HIVE), which are taking giant strides in this arena, and gauge whether investors should consider them as potential investments.
Riot Blockchain
The numbers reveal the story for RIOT. At the end of 2021, the company operated 30,907 miners with a 3.1 Exahash per second (EH/s), a 444% increase in capacity over the prior year.
Moreover, the company estimates to reach an aggregate BTC mining hash rate capacity of 12.8 EH/S in January 2023. Revenue jumped 16x to $213.2 million in 2021 and is estimated to grow to ~$721 million over the next two years.
If a company increases its top line without consequent gains in its bottom line, then it destroys value for investors. RIOT scores positively on this count, with a near 50% decrease in net loss reported for 2021. Additionally, the company witnessed a 1,437% gain in its mining revenues during this period.
RIOT held 4,884 BTC at the end of 2021 versus only 1,078 BTC for the prior year. In periods of an upswing in cryptocurrency prices, the value of this ever-increasing horde is expected to benefit the company.
Additionally, RIOT also hosts BTC mining equipment for institutional clients. Another key positive is RIOT’s development of a 200MW immersion-cooling tech at its Whinstone facility.
This, according to the company, is, “The Bitcoin mining industry’s first industrial-scale immersion-cooled deployment of Bitcoin mining hardware.” Operational benefits of the move include longer machine lifespan and lower maintenance requirements, along with higher hash rates and increased application-specific integrated circuit (ASIC) performance.
A gross margin of 61.5% comfortably beats the industry median figure of 49.5%. The company is heavily investing in its infrastructure as shown by its CAPEX-to-Sales ratio of 197.9%, which indicates that RIOT is investing ~$2 for every $1 it generates from sales. Conversely, the median industry figure is 2.2%.
RIOT’s share price has jumped 33.5% over the past month. H.C. Wainwright’s Kevin Dede sees a further 117.4% upside in the stock. The analyst has reiterated a Buy rating on RIOT alongside a price target of $50.
Analysts on the Street are inclined towards the stock with a Strong Buy, based on seven Buys and 1 Hold. The average Riot price target of $44.25 implies 92.39% upside potential.
HIVE Blockchain
Canadian crypto miner, HIVE Blockchain operates across Canada, Sweden, and Iceland. In its most recent third-quarter report, the company recorded a nearly 4x jump in revenue over the prior-year period. At the end of the quarter, HIVE held a total of 1,813 BTC and 23,290 Ethereum (ETH-USD) worth $168 million.
The company has been prudent in its capital allocation strategy. HIVE CFO, Darcy Daubaras, said, “A year ago, we made the conscious decision not to sell our mined cryptocurrency or undertake expensive financing when brokers were offering capital at 20% discounts or encouraging us to borrow against our BTC and ETH assets at a 12% cost of capital. HIVE’s modest equity fundings 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.”
This increase in revenue reflects higher crypto prices, increased BTC production due to HIVE’s Quebec and Atlantic facility acquisitions, and the addition of new miners. In February, the company had 1.9 Exahash of bitcoin mining capacity and increased its ETH mining capacity to 4.88 Terahash from 4.56 Terahash.
HIVE’s gross margin of 86.4% is superior to RIOT. Additionally, HIVE is already profitable with a net margin of 79.2%, which far outperforms the industry median of 5.7%.
Although HIVE’s CAPEX-to-Sales ratio of 98.7% is pretty high, RIOT seems to be more aggressive in its technology and infrastructure investments, which are precursors to future revenue growth.
While HIVE’s stock price has gained 11% over the past month, Stifel Nicolaus analyst Suthan Sukumar sees a further 65.2% upside potential in the stock. The analyst has initiated coverage on the stock with a price target of $3.75.
Analysts on the Street are inclined towards the stock with a Strong Buy, based on three Buys. The average HIVE price target of $3.85 implies % upside potential.
Closing Note
Analysts see higher potential in RIOT among the two names. Nonetheless, both the miners allow investors to invest in the crypto space with potential growth on offer. As the world slowly but surely embraces crypto, these two names stand to gain.
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