In May 2015, Seagate made an investment in Ripple Labs, which created the XRP cryptocurrency. Many tech companies make strategic investments so that they can gain access to technologies, which they believe could be useful for their business or in areas they want to explore. At the time one Ripple or XRP was worth less than a penny vs. the $1.83 it is currently trading.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
On Monday morning this past week, a Seeking Alpha article postulated that Seagate’s investment in Ripple could be worth close to $8 billion or half of the company’s market cap. When the stock opened for trading, it spiked up from the previous Friday’s close of $42.94 to $49.70, up 19%. It fell back during the day but still closed up 7% at $46.00.
After the market closed on Monday, Seagate positively preannounced its December quarter results. However, it appears that investors were expecting strong results as the stock was up less than 1% on Tuesday and closed at $46.39. For the week, it did increase over $8 or 19%. While the positive pre-announcement and the stock market strength probably contributed to the rise, it appears the Seeking Alpha article also helped.
Investment is worth about $1 billion (at current pricing)
In reading through three analysts reports, it appears that Seagate’s investment in Ripple is significantly less than what was calculated in the Seeking Alpha article. RBC’s Seagate analyst Amit Daryanani talked with the company’s management and based on their discussion he believes it owns a 2%-3% stake in Ripple through its participation in the Series A and B rounds in 2015 and 2016. Ripple in turn owns about 60% of the actual XRP tokens.
At the current market cap of $71 billion (XRP tokens are currently at $1.83), a 2.5% ownership of Ripple Labs, which controls 60% of the tokens, is worth just over $1 billion. This in turn is about 7% of Seagate’s market cap.
Cryptocurrencies are very volatile
Three months ago, Ripple’s XRP price was $0.26, which translated to a $10 billion market cap. On Monday, its price ranged from $1.93 to $2.78 per Yahoo! Finance, which means its market cap had about a $33 BILLION market cap swing in 1 DAY.
If Ripple was to unload a large percentage of its XRP holdings, it would almost assuredly crash the value of the tokens which would decrease the value of Seagate’s investment.
Don’t count your chickens before they hatch
Seagate’s investment is in Ripple Labs, which owns about 60% of the XRP token. This isn’t the same as owning a lot of cryptocurrency that can be liquidated. This could be a very nice windfall for Seagate but unless Ripple Labs sells the tokens and distributes the cash, it could be hard for Seagate to monetize this investment. This then means the investment’s value should be discounted to less than $1 billion.
You can check out my other Forbes articles, “9 Reasons Bitcoin Could Hit $100,000 Or More” and “Kodak And Long Island Ice Tea Embracing Blockchain Is Just Like Dot Com In 1999. It Didn’t End Well,” regarding digital currencies.
