The 12 Months of Crypto: September
Bitmain’s IPO Explained
This is part of a 12 part highlight reel by BlockWorks Group where we review the biggest crypto and blockchain story from each month of 2018.
The Story
On September 26, the world’s largest provider of crypto miners submitted its IPO prospectus with the Stock Exchange of Hong Kong.
Bitmain, which is led by Jihan Wu, is best known for its ‘Antminer’ devices, which allow the owner to mine for Bitcoin and other cryptocurrencies.
The two largest shareholders include Jihan (20% of shares) and Micree Zhan, the CEO of Bitmain (36% of shares). The CEO of Sogou, a Chinese search engine, is also one the largest shareholders.
Crunchbase confirms the company raised some $765 million across Series A, Series B and Series B rounds.
The two biggest takeaways from the filing:
- Bitmain, which is only 5 years old, made an insane amount of money the last two years
- Bitmain needs a bull market to stay alive
Let’s dive into the money…
The Good
In 2017, Bitmain grossed over $2.5 billion in revenue, a near-10X leap on the $278 million it claimed for 2016.
In the first half of 2018, Bitmain’s revenue was $2.85 billion, with a net profit of $1.12 billion. 95% of their H1 2018 revenue came from the sale of 2.56 million mining rigs.
The company said it posted $701 million in net profit in 2017, up from $104 million in 2016. For the first half of 2018, it claimed a gross profit of $743 million.
With over 80,000 customers, half of their sales came from China.
The Bad
The 2017 bubble led to Bitmain overestimating demand and 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.
And the Ugly
Originally reported by the Twitter account known as BTCKING555, unreleased quarterly earnings data for Q3 2018 allegedly reveals $740 million losses.
If true, the giant cash hemorrhage would mark Bitmain’s worst quarter on record.
Moving forward
As of June of 2018, Bitmain had a team of 840 full-time engineers.
However, reports in China are now saying that Bitmain layoffs are likely to be as high as 85%. All non-essential business units and team working on AI initiatives will be cut.
2019 will be a year of crazy IPOs. Uber, Lyft and Airbnb are all preparing to go public this year — each at valuations in the tens of billions of dollars.
We’ll have to wait and see if Bitmain will join this cast, or fall apart in the wreckage of the bear market.
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