Got the Bitcoin (BTC-USD) post-halving event blues? Today I’ll lift your spirits with cryptocurrency pick Hut 8 (NASDAQ:HUT) stock, which will surely get any bitcoin bull back in the game.
Mid-May appears to be a cooling-off period for cryptocurrency. The excitement over the Security and Exchange Commission’s approval of spot bitcoin exchange-traded funds (ETFs) and April’s Bitcoin-halving event appears to be fading somewhat.
Furthermore, the post-halving reality is starting to set in. Bitcoin miners won’t receive the same rewards they did previously, and investors might wonder whether it’s worthwhile to buy shares of mining stocks now. However, a deep dive into Hut 8’s financials will suggest that the company should be in good condition despite the reduced mining rewards.
A diversified business, but mostly mining
One thing I like about Hut 8 is that there’s more to the company than just bitcoin mining. In fact, some of Hut 8’s revenue derives from its Managed Services and High Performance Computing – Colocation and Cloud divisions.
Let’s not kid ourselves though. The vast majority of Hut 8’s revenue comes from its Digital Assets Mining business. Consequently, that’s the business segment to watch closely if you’re going to evaluate Hut 8.
Let’s see where the data takes us. In the first quarter, revenue for Hut 8’s Digital Assets Mining segment ballooned to $30.357 million, compared to $7.646 million in the year-earlier quarter. That’s a 297% increase, by my calculation.
It’s also important to look at a company’s cost of revenue, however. Thus, the cost of revenue for Hut 8’s Digital Assets Mining segment expanded from $6.079 million in the year-earlier quarter to $16.622 million in Q1 2024. In other words, the company is demonstrating the old principle that it costs money to make money.
This principle also applies to Hut 8’s business as a whole. The company’s total revenue jumped from $15.647 million in the year-earlier quarter to $51.741 million in the first quarter of 2024. However, during that same time frame, Hut 8’s total cost of revenue increased from $8.507 million to $28.147 million.
I’m mentioning all of this because Hut 8 CEO Asher Genoot touted the company’s “restructuring program,” which was launched in the first quarter:
“We shut down our underperforming Drumheller site, retired inefficient miners, initiated the relocation of our fleet from hosted to owned facilities, and began the implementation of our proprietary energy-curtailment software across our sites.”
That’s all fine and well, but it remains to be seen when those cost efficiencies will show up in the companies financial results. Hopefully Hut 8 will demonstrate better cost containment in the coming quarters.
Hut 8’s stunning bottom-line stats
I’ve been a little harsh on Hut 8, but there’s no denying that its revenue growth is outstanding. The same could be said about the company’s bottom-line statistics for Q1 2024.
Hut 8 managed to increase its adjusted EBITDA by 2,576% from $11.1 million in the year-earlier quarter to $297 million in the first quarter of 2024. During that same time frame, Hut 8 also grew its net income by 1,350% — from $17.3 million to $250.9 million.
Granted, the first quarter of this year was unusual with the bitcoin price rising from $45,000 to $70,000. One might also presume that the impact of April’s bitcoin-halving event on mining rewards didn’t affect Hut 8 during the first quarter.
Still, even if the company’s bitcoin-mining rewards are cut in half, its fast-growing revenue could more than make up for that. Again, it would help if Hut 8 contains its expenditures.
Let the market normalize
Since the first quarter was so unusual for the cryptocurrency market, Hut 8 stock investors shouldn’t expect the same level of excitement in quarters two, three and four. They also shouldn’t anticipate the same rate of revenue and income growth that Hut 8 demonstrated in Q1.
The cryptocurrency market should normalize in the coming quarter, and that’s not necessarily a bad thing. Just consider that the process of price discovery for HUT stock might take a while. Until then, volatility should be expected.
Therefore, it’s not a great idea to load the boat with Hut 8 stock. Instead, the prudent policy would be to just buy a few Hut 8 shares if you’re very bullish about bitcoin. With that strategy, you’d be invested in an income-positive business with an eye-catching growth story, and if your position size is small, you’ll have room to add more later if you’d like to.
