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.
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 preannouncement 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.
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. Which then means the investment’s value should be discounted to less than $1 billion.
Source: https://www.forbes.com
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