- This Bitcoin miner posted a net profit of $1.7 million in Q4 2020, but the good result is due to a debt extinguishment gain.
- Investview’s working capital and shareholders’ equity positions were negative as of December.
- I think the business isn't worth much in its current state and that the company is a sell.
- Even if Investview somehow manages to reach a hash rate of 1,250 PH/s, it still looks expensive compared to competitors.
Investview (OTCQB:INVU) is a small fintech company that recently shifted its focus to Bitcoin (BTC-USD) mining through a subsidiary named SAFETek. At first glance, this seems to have been a prudent move as Investview managed to swing to a net profit of $1.7 million in Q4 2020 from a net loss of $3.8 million a year earlier.
However, the reason behind this profit was a one-off gain from the extinguishment of debt and the operating profit margin was negative. Also, the company had negative working capital as of December.
Investview is valued at $1.78 billion as of the time of writing but I think the business could be close to worthless in its current state. Even if the company manages to accomplish its growth objectives, its still seems overvalued compared to competitors. This one looks like a sell.
Overview of the business
In its own words, Investview aims to provide financial education tools, content, research, and management of digital asset technology that mines cryptocurrencies, with a focus on Bitcoin mining and the generation of digital assets.
So, what does this mean? Well, the company currently has two main subsidiaries - iGenius and SAFETek. The former was previously known as Kuvera and is an e-learning firm focused on the cryptocurrency, equity, and forex markets.
However, Investview's subscription revenues have been dropping in FY21 and the company now generates the majority of its revenues from cryptocurrency mining. This is where SAFETek comes into the picture. Investview used to sell high-powered data processing equipment through a subsidiary named APEX Tex and then the customers leased that equipment back to SAFETek. This was pretty much the same as the sale and leaseback transactions that are common in the real estate sector.
The APEX program was launched in August 2019 and I think that saying it didn't live to expectations is an understatement. It was discontinued in June 2020 after it had created a debt obligation of over $65 million for Investview. Some $23 million of this sum was on the balance sheet and there were $42 million of interest expense obligations over a period of five years.
However, the new Bitcoin mining business seems to be doing well, although its still relatively small. In March 2021, SAFETek booked Bitcoin mining revenues of $3.1 million and Investview says it had a gross profit of $2.4 million for that month.
Investview added that it has moved its Bitcoin mining operations to a new and lower fixed cost mining facility, thus boosting its gross profit margins to 77% in March.
Financials and valuation
You see, the company booked a $4.2 million gain on debt extinguishment as a result of a deal where all of the leases related to APEX were canceled in exchange for notes. The Bitcoin mining business doesn't seem to have been profitable in the quarter as the operating result was still negative.
Looking at the balance sheet, I think the situation was dire in December with both the working capital and shareholders' equity in negative territory. Also, total assets stood at just $10.8 million.
According to OTC Markets, Investview currently has 3,237,481,329 shares outstanding and its market capitalization stands at $1.78 billion as of April 8.
Bulls are likely to point out that while the market capitalization is high for such a small business, Bitcoin mining revenues are growing fast and margins are improving. This is a growth stock and it's all about the future. Well, I'm sorry to tell you this, but even if Investview somehow manages to deliver on its growth plans without diluting shareholders, it still looks severely overvalued.
On April 6, SA published a compelling article by BOOX Research which covers a group of 12 Bitcoin mining stocks. In this business, it's all about the hash rate and Investview's goals are to get past 1 EH/s (exa hash) of total hash rate by mid-2021 and 1.25 EH/s (1,250 PH/s) by the end of 2022. These numbers are close to the ones of Bitfarms (BFARF), which is valued at $753.8 million as of the time of writing. The latter currently has a hash rate of 1,200 PH/s.
I think the reason that the market capitalization of Investview has soared over the past few weeks could be strong retail investor interested spurred by promotion on social media platforms.
The company is currently popular on platforms such as twitter and StockTwits. On YouTube, the company is being covered by several channels including ShadowTrader, Stock Talk with Eli, Ph.D., MY LIFE IS AWESOME, Brian Makes Benjamins, Insider Financial, and Stock Talk Daily. The most popular video on Investview currently has over 41k views and was posted on March 29. This is just one trading session after the trading volume and share price started soaring.
Note that Investview isn't promoting the business itself, but this is done by a significant number of retail investors and traders.
Investview's Q4 2020 net profit is a result of a debt extinguishment gain and it's unclear if the operating profit margin is currently positive. As of December 2020, the company's working capital and shareholders' equity positions were negative, which is a significant red flag.
I think that the business is close to worthless in its current state. Even if Investview manages to reach a hash rate of 1,250 PH/s, it still looks expensive. For Example, Bitfarms currently has a hash rate of 1,200 PH/s and its market capitalization stands at $753.8 million.
In my view, Investview is significantly overvalued and investors can take advantage of this by shorting the shares. According to data from Fintel, the short borrow fee rate stands at 24.39% as of the time of writing.
The only major risk I see for the bear thesis is that Investview's share price could soar again due to high retail investor interest.
This article was written by
Gold Panda has been working as an M&A analyst for over 11 years. He's been investing since 2007. Preferring value to growth, he tends to take a relatively conservative approach in his investing. His focus is on small and micro-cap stocks, which he believes is the area which offers the greatest opportunity to exploit market mis-pricings.Gold Panda is part of the team that runs the investing group Microcap Review. He provides a real-time portfolio to the group. Microcap Review focuses on three areas of opportunity in the micro-cap space: arbitrage and special situations, net-nets and undervalued stocks. Learn more.
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