Pull the Other One

Shouting Crypto in a Crowded Theater

Most are struggling businesses with financial challenges.
Photographer: sorbetto/Getty Images
EASTMAN KODAK CO
-0.15
At Closing, February 22rd
6.25 USD

We all know the drill.

A U.S.-listed company announces plans to move into cryptocurrency. Its shares surge. And then they fall.

Some speculators make a quick buck, then cash out. Others are left holding the baby, having bought in at the peak.

Firecracker

News a company is moving into blockchain or cryptocurrencies has sparked many a stock rise

Source: Bloomberg

Note: Denotes single one-day move after news of the plans, may not be on or immediately after that news.

But there's another thread running through these firms that should tell you a thing or two. They're all struggling businesses with clear strategic or financial challenges.

Long Island Iced Tea Corp. is the most notable of the recent crypto-opportunists. The company hasn't posted a profit in at least 11 quarters and, as Bloomberg's Lily Katz uncovered, was facing delisting unless it brought its market cap up above $35 million. Chronically unprofitable and ever-shrinking Chinese social media company Renren Inc. figured an ICO would brighten its future, and obliging traders agreed.

Eastman Kodak Co. has been drifting in and out of profitability for the past decade (mostly out), with its shares following suit. Seven years after the death of Kodachrome, the company is now proffering KodakCoin, which will allow:

"... participating photographers to take part in a new economy for photography, receive payment for licensing their work immediately upon sale, and sell their work confidently on a secure blockchain platform."

Finally, there's Japanese instant messaging group Line Corp. It's not quite the basket case of the aforementioned examples, but it's heading that way. User growth is stagnant and revenue from its two legacy units -- communication and content -- has fallen. So we shouldn't be surprised to hear that it's also considering dipping a toe into the crypto space, as Bloomberg's Yuji Nakamura reported. Line's Tokyo-traded shares jumped as much as 13 percent Tuesday before paring gains Wednesday.

In the Sand

Line's user growth has plateaued

Source: Line

* Line reports monthly active users only for its top four countries, Japan, Taiwan, Thailand and Indonesia.

In the cases of Kodak and Line, blockchain actually makes a lot of sense. The technology is well-suited for IP management, with the photography industry ripe for a new approach to keeping track of and monetizing content. In social media and chat apps, building some kind of cryptocurrency-transfer mechanism would be an extension of the existing trend toward integrating payments with instant messaging.

Profit Watch

Line's earnings have seen better days

Source: Bloomberg

But just because it makes sense, doesn't mean these companies can do it. The crypto-universe is littered with the carcasses of failed ICOs, only some of which were downright scams. This high fatality rate can be put down to the fact that blockchain is hard, and solid execution is crucial.

Renren already had its ICO pulled by Chinese regulators and at least Long Island admits that it has "relatively little experience in the blockchain technology industry."

For Kodak and Line, though, the risk is that they and their investors believe they can pull it off. Given the companies' recent history, there's good cause for doubt.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Tim Culpan in Taipei at tculpan1@bloomberg.net

    To contact the editor responsible for this story:
    Katrina Nicholas at knicholas2@bloomberg.net

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