Crypto mining giant Bitmain reveals heady growth as it files for IPO

[Hydrogen]

After months of speculation, Bitmain  — the world’s largest provider of crypto miners — has opened the inner details of its business after it submitted its IPO prospectus with the Stock Exchange of Hong Kong. And some of the growth numbers are insane.

The document doesn’t specify how much five-year-old Bitmain is aiming to raise from its listing — that’ll come later — but it does lift the lid on the incredible business growth that the company saw as the crypto market grew massively in 2017. Although that also comes with a question: can that growth continue in this current bear market?

The company grossed more than $2.5 billion in revenue last year, a near-10X leap on the $278 million it claims for 2016. Already, it said revenue for the first six months of this year surpassed $2.8 billion.

Bitmain is best known for its ‘Antminer’ devices — which allow the owner to mine for Bitcoin  and other cryptocurrencies — and that accounts for most of its revenue: 77 percent in 2016, 90 percent in 2017, and 94 percent in the first half of 2018. Other income is generated by its mining farms, shared mining pools, AI chips and blockchain services.

The company is fabless, which means it develops its own chip design and works with manufacturing partners who bring them to life as physical chips. Those chips are then used to power mining hardware which lets the owner earn a reward by mining Bitcoin and other cryptocurrencies. Bitmain claims over 80,000 customers with just under half of sales in China and the rest overseas.

The company said it posted $701 million in net profit in 2017, up from $104 million in 2016. For the first half of this year, it is claiming a gross profit of $743 million. (Operational profit touched $1 billion for that period.)

That’s quite staggering growth, but there are some signs that 2018 comes with more challenges.

Margins are down. Gross margin in the first six months was 36 percent, down from 48 percent in 2017 and 54 percent in 2016. Contributing to that, the cost of sale percentage in the first half of 2018 rose to 64 percent from 51 and 52 percent in 2017 and 2016, respectively.

Bitmain is trying to bat away those concerns by using H1 2018 figures, rather than splitting that period into two quarters. That’s important because the crypto market has plunged massively since January, losing more than half of its value. That has impacted most crypto companies — whether it is exchanges seeing less trading or wallets less traffic — and it is sure to have had a toll on Bitmain.

The question is to what extent?

That’s crucial because it is what will give this IPO momentum, but Bitmain isn’t playing ball and showing us the full picture.

Interestingly, Bitmain accepts Bitcoin and other cryptocurrencies as payment for its miners, with some 27 percent of purchases last year paid for using crypto. As a result, those payments aren’t included in revenue but do show up as “investing cash inflow” when they are converted to fiat and used in the business. That’s a 2018 accounting problem right there.

As a result, Bitmain has a negative net cash used in operating activities position but those become positive when factoring in the crypto. The company said it held $887 million in crypto as of the end of the first half of 2018, that’s up from $872 million in 2017, $56 million in 2016 and $12 million in 2015. The company said that changes in the market saw it lose $102.7 million in value from its crypto hoard. During the first six months of 2018, it cashed out $516.5 million worth of crypto, having exchanged $529 million in 2017.

The wild ride of 2017, however, led the company to over-estimated demand and, as a result, its inventory ballooned by $1 billion.

Here’s Bitmain explanation of how it managed to get it so wrong:

In early 2018, we anticipated strong market growth for cryptocurrency mining hardware in 2018 due to the upward trend of cryptocurrencies price in the fourth quarter of 2017, and we placed a large amount of orders with our production partners in response to the anticipated significant sales growth. However, there had been significant market volatility in the market price of cryptocurrencies in the first half of 2018. As a result of such volatility, the expected economic return from cryptocurrency mining had been adversely affected and the sales of our mining hardware slowed down, which in turn caused an increase in our inventories level and a decrease in advances received from our customers in the first half of 2018. Going forward, we will actively balance our business growth strategy, inventories and cryptocurrency asset levels to ensure a sustainable business growth and a healthy cash flow position, and we will adjust our procurement and prediction plan to maintain an appropriate liquidity level.

Despite an extra $1 billion in inventory, Bitmain estimates it has the working capital — including crypto pile and the result of its IPO — to sustain operations for at least another 12 months. That, according to its figures, is around $343 million in cash and cash equivalents but clearly it needs another megahit product or for the market demand to rise again.

Indeed, Bitmain just last week announced its newest mining chip — shrunk down to 7nm — which it believes will offer more power and greater efficiency for miners. That progress coupled with the rising value of crypto — i.e. what owners of Bitmain miners can earn — has helped the company steadily raise the price of its hardware.

Average selling price for its Bitcoin mining machines in 2015 was just $463, but that jumped to $767 in 2016, $1,231 in 2017 and $1,012 in the first half of 2018.

Bitmain co-founder Jihan Wu is the face of the company and one of its largest shareholders with a 20 percent stake

Beyond mining, the company is also developing AI chips, the first of which launched last year. They are used for developing cloud systems, as well as object, image and facial recognition purposes.

Citing third party figures, Bitmain claims to have a dominant 75 percent of the ASIC mining hardware market. It is investing heavily in R&D, which reached $73 million last year and $86 million during the first half of 2018. In addition, around one-third of its 2,594 employees are listed as working in research and development.

It’s likely that Bitmain sees more revenue in crypto than any other company on the planet.

Bitmain’s document confirms the company raised some $784 million across Series A, Series B and Series B rounds.

Its investor roster is fairly public thanks to leaks and it includes the likes of IDG, Sequoia China, and Kaifu Lee’s Sinovation fund. However, the prospectus does confirm that shareholders include retailer NewEgg, EDBI — the corporate investment arm of Singapore’s Economic Development Board — and Uber investor Coatue. Founders Ketuan Zhan and Jihan Wu are the largest shareholders and they control 36 and 20 percent, respectively.

We can expect Bitmain to flesh out the prospectus with more juicy information, including a target raise which will also generate its valuation. But for now there are over 400 pages of information to process, you can find them all right here.

Note: The original version of this article has been updated to correct the figures for Bitmain’s crypto holdings.

Editorial note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.

https://techcrunch.com/2018/09/26/bitmain-hong-kong-ipo/

....

Good breakdown with lots of info.

For a long time people wondered why bitmain and other ASIC manufacturers would bother selling ASIC hardware, when they could simply use the ASICS they built to mine bitcoin on their own.

It would appear bitmain's $701 million in new profit for 2017 is the answer people sought.

We may also have part of the reason for nvidia's forecast for reduced demand of mining hardware in 2018. Bitmain says they over-anticipated demand for mining hardware in 2018 due to the price valuation spikes of 2017. As a result, they overproduced hardware which appears to have flooded the market, resulting in reduced demand.

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[Hydrogen]

Bumping this in case anyone cares about bitmain's finances.

 

[davis196]

It seems to me that having an IPO isn't the right move for a company like Bitmain.After company gets listed on some stock exchange,the company starts thinking only about it's shareholders and not about innovations and actual growth.Bitmain might become the new Tesla,with all pros and cons.
We don't know for how long the bearish crypto trend will continue and this will decrease the demand for mining hardware.

[RBEP-RBC]

The whole document is pretty interesting. One quirk is that they are perpetually cash flow from operations negative since any crypto income ends up in the cash flow from investing section instead. Which makes me wonder how will accounting for crypto evolve over time as it becomes a bigger and bigger part of listed companies' operations.

Doing an IPO shoves off some of the risk of the venture and allows owners to diversify their assets. For a team in China, this is probably very attractive as they can have their company/assets/etc seized at any time for no reason.

[1Referee]

It seems to me that having an IPO isn't the right move for a company like Bitmain.After company gets listed on some stock exchange,the company starts thinking only about it's shareholders and not about innovations and actual growth.

Shareholders of non public crypto businesses are already a pest to this ecosystem, where going public will force them to do what's good to please actual investors, and not shady con artists such as the ones backing BitPay and Blockchain.com which have done nothing but making an ass of themselves. In case of Bitmain going public and they mess up like what BitPay for example did, they will be punished for that on the stock market. Who is there to punish a private business such as BitPay?

Bitmain will be forced to do what's the best for its profits even more, and that's being kind towards Bitcoin, which is the driving power of this ecosystem. You don't break that what feeds you and made you grow. They'll be reminded to that even more now.

[exstasie]

Bitmain will be forced to do what's the best for its profits even more, and that's being kind towards Bitcoin, which is the driving power of this ecosystem. You don't break that what feeds you and made you grow. They'll be reminded to that even more now.

That makes sense, but there are also areas where Bitmain's interests don't align so squarely with the good of Bitcoin. For instance, we generally think of concentration/centralization of mining and chip manufacturing to be a bad thing, so competition in those sectors is really important.

However, Bitmain has a strong position and incentive to dominate those markets. That's why it's argued that Bitmain is purposefully driving down its own profitability to squeeze out competitors with lower prices. It's a long game approach where they sacrifice profit early on to secure market share:

Instead, Bitmain took a different approach by reducing its profitability. Researchers at BitMEX, who published an in-depth report on the intricacies of the company’s balance sheet, said that Bitmain has purposefully decreased its profit margin to offer its products and services at low levels to drive its competitors out of business.

BitMEX Research also contended in their breakdown of the IPO, the main reason Bitmain is seeking funding is to prevent a competitor funding advantage:

In our view the primary motivating factor for the IPO is simply that Bitmain’s competitors are also planning on doing them and the industry is fiercely competitive, as Bitmain’s loss making prices indicate. Rival Canaan Creative are planning on an IPO and Bitmain are unlikely to let them obtain such a funding advantage. Bitmain’s IPO should deduct money from the pool of capital that could otherwise be invested in Canaan as well as the other miners and it is therefore a good complement to the strategy of lowering prices.

One thing people tend to forget when they're celebrating Bitmain's losses from BCH and higher efficiency miners from competitors: no chip manufacturers can remotely compete with Bitmain's scale. Not even close. They aren't going anywhere. The question is whether they can continue cornering the market.

[oriontab]

At some point,  it took a mere 42 days to get your ROI for cash invested in ASIC miners and yet Bitmain never went into mining  themselves because they knew it was for a brief period. Mining profitability is at its lowest,demand low, yet they are launching an IPO to raise cash. I sense something sinister with their plan. Likely to reduce the company 's risk by transferring it to new investors.

[yoseph]

At some point,  it took a mere 42 days to get your ROI for cash invested in ASIC miners and yet Bitmain never went into mining  themselves because they knew it was for a brief period. Mining profitability is at its lowest,demand low, yet they are launching an IPO to raise cash. I sense something sinister with their plan. Likely to reduce the company 's risk by transferring it to new investors.

I have never trusted Bitmain ever since they spearheaded the August 1 which have rise to Bitcoin Cash am sure that if there was no split, Bitcoin would be stronger than the level its currently is now.

[jseverson]

At some point,  it took a mere 42 days to get your ROI for cash invested in ASIC miners and yet Bitmain never went into mining  themselves because they knew it was for a brief period.

Wait what? Bitmain does run their own mining farms. They're even accused of selling miners that they've already used themselves.

I sense something sinister with their plan. Likely to reduce the company 's risk by transferring it to new investors.

I'm not sure about sinister, but it does strike me odd that a company as profitable as Bitmain would want to go public. It kind of makes you think that the recent reports of losses do have something to do with it. I don't think they're in any immediate danger though considering their current position in the market.

[stompix]

At some point,  it took a mere 42 days to get your ROI for cash invested in ASIC miners and yet Bitmain never went into mining  themselves because they knew it was for a brief period.

Wait what? Bitmain does run their own mining farms. They're even accused of selling miners that they've already used themselves.

Doubling down on the what here!!!
And about that accusation, it's more a fact that a simple suspicion.

Bumping this in case anyone cares about bitmain's finances.
 

Well, we care but only if it would have shown them going bankrupt. Once you have an article like that, I promise I'll bump that till the Rapture.

Bitmain will be forced to do what's the best for its profits even more, and that's being kind towards Bitcoin, which is the driving power of this ecosystem. You don't break that what feeds you and made you grow. They'll be reminded to that even more now.

I honestly doubt that anything will change, after all, Exxon is not interested in how much pressure gas prices put on our budget but about the money flowing in their pockets. And the electric cars wouldn't have stood a chance if it weren't for rocketing gas prices, so they did somehow manage to cut off the branch they were sitting on. And they were sitting pretty comfy.

[futile-resistance]

After months of speculation, Bitmain  — the world’s largest provider of crypto miners — has opened the inner details of its business after it submitted its IPO prospectus with the Stock Exchange of Hong Kong. And some of the growth numbers are insane.

The document doesn’t specify how much five-year-old Bitmain is aiming to raise from its listing — that’ll come later — but it does lift the lid on the incredible business growth that the company saw as the crypto market grew massively in 2017. Although that also comes with a question: can that growth continue in this current bear market?

The company grossed more than $2.5 billion in revenue last year, a near-10X leap on the $278 million it claims for 2016. Already, it said revenue for the first six months of this year surpassed $2.8 billion.

Bitmain is best known for its ‘Antminer’ devices — which allow the owner to mine for Bitcoin  and other cryptocurrencies — and that accounts for most of its revenue: 77 percent in 2016, 90 percent in 2017, and 94 percent in the first half of 2018. Other income is generated by its mining farms, shared mining pools, AI chips and blockchain services.

The company is fabless, which means it develops its own chip design and works with manufacturing partners who bring them to life as physical chips. Those chips are then used to power mining hardware which lets the owner earn a reward by mining Bitcoin and other cryptocurrencies. Bitmain claims over 80,000 customers with just under half of sales in China and the rest overseas.

The company said it posted $701 million in net profit in 2017, up from $104 million in 2016. For the first half of this year, it is claiming a gross profit of $743 million. (Operational profit touched $1 billion for that period.)

That’s quite staggering growth, but there are some signs that 2018 comes with more challenges.

Margins are down. Gross margin in the first six months was 36 percent, down from 48 percent in 2017 and 54 percent in 2016. Contributing to that, the cost of sale percentage in the first half of 2018 rose to 64 percent from 51 and 52 percent in 2017 and 2016, respectively.

Bitmain is trying to bat away those concerns by using H1 2018 figures, rather than splitting that period into two quarters. That’s important because the crypto market has plunged massively since January, losing more than half of its value. That has impacted most crypto companies — whether it is exchanges seeing less trading or wallets less traffic — and it is sure to have had a toll on Bitmain.

The question is to what extent?

That’s crucial because it is what will give this IPO momentum, but Bitmain isn’t playing ball and showing us the full picture.

Interestingly, Bitmain accepts Bitcoin and other cryptocurrencies as payment for its miners, with some 27 percent of purchases last year paid for using crypto. As a result, those payments aren’t included in revenue but do show up as “investing cash inflow” when they are converted to fiat and used in the business. That’s a 2018 accounting problem right there.

As a result, Bitmain has a negative net cash used in operating activities position but those become positive when factoring in the crypto. The company said it held $887 million in crypto as of the end of the first half of 2018, that’s up from $872 million in 2017, $56 million in 2016 and $12 million in 2015. The company said that changes in the market saw it lose $102.7 million in value from its crypto hoard. During the first six months of 2018, it cashed out $516.5 million worth of crypto, having exchanged $529 million in 2017.

The wild ride of 2017, however, led the company to over-estimated demand and, as a result, its inventory ballooned by $1 billion.

Here’s Bitmain explanation of how it managed to get it so wrong:

In early 2018, we anticipated strong market growth for cryptocurrency mining hardware in 2018 due to the upward trend of cryptocurrencies price in the fourth quarter of 2017, and we placed a large amount of orders with our production partners in response to the anticipated significant sales growth. However, there had been significant market volatility in the market price of cryptocurrencies in the first half of 2018. As a result of such volatility, the expected economic return from cryptocurrency mining had been adversely affected and the sales of our mining hardware slowed down, which in turn caused an increase in our inventories level and a decrease in advances received from our customers in the first half of 2018. Going forward, we will actively balance our business growth strategy, inventories and cryptocurrency asset levels to ensure a sustainable business growth and a healthy cash flow position, and we will adjust our procurement and prediction plan to maintain an appropriate liquidity level.

Despite an extra $1 billion in inventory, Bitmain estimates it has the working capital — including crypto pile and the result of its IPO — to sustain operations for at least another 12 months. That, according to its figures, is around $343 million in cash and cash equivalents but clearly it needs another megahit product or for the market demand to rise again.

Indeed, Bitmain just last week announced its newest mining chip — shrunk down to 7nm — which it believes will offer more power and greater efficiency for miners. That progress coupled with the rising value of crypto — i.e. what owners of Bitmain miners can earn — has helped the company steadily raise the price of its hardware.

Average selling price for its Bitcoin mining machines in 2015 was just $463, but that jumped to $767 in 2016, $1,231 in 2017 and $1,012 in the first half of 2018.

Bitmain co-founder Jihan Wu is the face of the company and one of its largest shareholders with a 20 percent stake

Beyond mining, the company is also developing AI chips, the first of which launched last year. They are used for developing cloud systems, as well as object, image and facial recognition purposes.

Citing third party figures, Bitmain claims to have a dominant 75 percent of the ASIC mining hardware market. It is investing heavily in R&D, which reached $73 million last year and $86 million during the first half of 2018. In addition, around one-third of its 2,594 employees are listed as working in research and development.

It’s likely that Bitmain sees more revenue in crypto than any other company on the planet.

Bitmain’s document confirms the company raised some $784 million across Series A, Series B and Series B rounds.

Its investor roster is fairly public thanks to leaks and it includes the likes of IDG, Sequoia China, and Kaifu Lee’s Sinovation fund. However, the prospectus does confirm that shareholders include retailer NewEgg, EDBI — the corporate investment arm of Singapore’s Economic Development Board — and Uber investor Coatue. Founders Ketuan Zhan and Jihan Wu are the largest shareholders and they control 36 and 20 percent, respectively.

We can expect Bitmain to flesh out the prospectus with more juicy information, including a target raise which will also generate its valuation. But for now there are over 400 pages of information to process, you can find them all right here.

Note: The original version of this article has been updated to correct the figures for Bitmain’s crypto holdings.

Editorial note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.

https://techcrunch.com/2018/09/26/bitmain-hong-kong-ipo/

....

Good breakdown with lots of info.

For a long time people wondered why bitmain and other ASIC manufacturers would bother selling ASIC hardware, when they could simply use the ASICS they built to mine bitcoin on their own.

It would appear bitmain's $701 million in new profit for 2017 is the answer people sought.

We may also have part of the reason for nvidia's forecast for reduced demand of mining hardware in 2018. Bitmain says they over-anticipated demand for mining hardware in 2018 due to the price valuation spikes of 2017. As a result, they overproduced hardware which appears to have flooded the market, resulting in reduced demand.

This is big news, even tho I hate bitmain dudes are getting as big as this enough to get and IPO is a big news. It is great for people that will follow. Mining business is truely a giant in the world, I never been inside that business type but in general it looks like even with ETH drops the mining is still going strong.

I know there is less hash than it used to be and people are not renewing stuff and all that but bitmain getting an IPO shows that mining could be a legit business and not just "6 cards in a rig at home" type deal. You can literally start a whole business on this.