Hut 8’s Data Center Deal Will Set It Apart From Peers, Analyst Says

Hut 8 closed on its C$30 million purchase of 5 of TeraGo’s Canadian data centers on Jan. 31.

AccessTimeIconMar 18, 2022 at 3:40 p.m. UTC
Updated May 11, 2023 at 4:08 p.m. UTC
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Crypto miner Hut 8’s (HUT) acquisition of the cloud and colocation data center business from TeraGo could provide a key long-term competitive advantage, said Craig-Hallum analyst George Sutton.

“The blatantly obvious challenges facing bitcoin miners are the recent sell-off in BTC price and supply chain disruptions and, as expected, the stock price followed bitcoin’s trajectory,” wrote Sutton in a research note on Friday. However, he added, “What isn’t blatantly obvious is the impact HUT’s acquisition of TeraGo’s Data Center business will have on the company’s future.”

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  • Sutton expects the deal, which closed on Jan. 31, will add about C$20 million (US$15.79 million) of “high-margin, run-rate revenue” for Hut 8, allowing the company to offset the cash burn from its “HODL” strategy of keeping nearly all of its mined crypto. “Our long-term view is the data center business could eventually scale to a level where fiat profits [generated from the data center business] fully cover corporate overhead,” Sutton said.

    Hut 8 paid C$30 million in cash in January to buy the TeraGo data center business and brought over about 400 commercial customers across a variety of industry verticals including gaming, visual effects and government agencies. Given Hut 8 CEO Jaime Leverton’s background of 20 years in the data center business, the miner “now has a familiar asset to monetize with a unique vertical focus,” Sutton wrote.

    The data center business is totally uncorrelated to digital asset mining and will help Hut 8 weather some of the market volatility that comes with being a bitcoin miner, while serving “deeply underserved” markets for Web 3 infrastructures, Hut 8 Vice President of Corporate Development Sue Ennis told CoinDesk in an interview.

    “We really think it's a tremendous opportunity to complement our [mining] operations,” she said, adding that with the deal the company is taking a long-term view on Web 3 and setting the stage to service the industry as it grows. “The way we look at it is that you don't really need to bet on who the Web 3 winners are going to be when you own the racetrack,” Ennis said.

    Shares rose but remain under pressure

    Hut 8 shares fell initially on March 17 after the company posted a surprise loss for its fourth quarter and fiscal 2021 results. The decline was short-lived, though, and the stock bounced back for a 7% gain by the end of the session. Still, HUT remains lower by nearly 70% since hitting an all-time high late last year, the shares falling alongside the big drop in the price of bitcoin.

    The reported miss on Q4 income was mainly due to a revaluation of some of the warrants the company issued in 2021, which is now classified as liability of $114.2 million. “This is a standard practice for any company that has warrants outstanding,” Ennis said, noting that Hut 8 has the fewest amount of warrants among peers.

    While the warrant revaluation made a big impact on GAAP earnings, said Ennis, investors should really be focused on results without the warrant liability - positive earnings of $0.31 per share versus the GAAP reported loss of $0.54.

    HUT’s shares are down just over 2% while bitcoin has slipped by roughly 1%.


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    Aoyon Ashraf

    Aoyon Ashraf is managing editor with more than a decade of experience in covering equity markets

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