Yesterday, bitcoin exchangesBitmaxBy analyzing the Bitmain that has been circulating on Twitter recentlyPre-IPO documentsanalysis reportanalysis report. Bitmain, which achieved high profits and cash generation in 2017, may be losing money, the report said.
The first is the decline in mining revenue.According to the report, Bitmain’s mining revenue accounted for 18.4% of total revenue in 2016, while it accounted for only 3.3% in the first quarter of 2018.
Bitmax believes that the rewards for cryptocurrency mining are getting smaller and that cryptocurrency mining as an industry is losing profitability. Because Bitmain’s mining revenue may never reach 2017 levels again. But the decline also illustrates that Bitmain is shedding an increasingly competitive and lower-margin business.
The second is the decline in mining machine sales.Data shows that Bitmain’s core mining machine product S9 sold more than one million in 2017, but only sold more than 700,000 in the first quarter of 2018.
Bitmax calculates the implied cost of each mining machine based on the gross profit margin disclosed in 2017. Assuming the cost remains constant (which may not be realistic), the gross profit margin can be calculated based on the latest mining machine prices. According to Bitmax, the analysis shows that Bitmain is currently in a state of loss. Its main product S9 has a gross margin of 11.6%, and its L3 product has a negative 100% gross margin. Considering that the cost may have dropped, the actual value should be smaller than the calculated data, but Bitmain is still facing losses.
In the table, the prices of mining machines have dropped significantly, such as S9 from $1,719 last year to $499 at present, and L3 from $1,404 last year to $209 at present.
Bitmax stated that the price reduction may be a price strategy used to counter competitors. But it is also possible that there is too much inventory. As of March 2018, Bitmain had $1.2 billion in inventory on its books, equivalent to 52% of 2017 sales. So this could lead to further losses.
Then there is the excessive cash flow invested in the altcoin portfolio, mainly BCH.
One of Bitmain's main assets is its portfolio of cryptocurrencies. The cryptocurrency with the most holdings is BCH. At the beginning of August, it held about 5% of the total, and it is currently 6%. Holdings are valued at $558.7 million, while its Bitcoin holdings are worth $153 million.
Bitmax said that Bitmain used 67% of its cash flow in 2017 to buy BCH. With the recent decline of BCH, Bitmain may lose $328 million.
Although Bitmain's balance sheet shows no debt, the company had high cash generation in 2017. But its negative factors include:
TSMC’s large upfront payments, totaling nearly $866 million in 2017, weakened Bitmain’s working capital position;
Large inventory balance, approximately $1.2 billion (over 50% of annual sales), indicating overproduction;
The massive altcoin portfolio, with a cost basis of $1.2 billion, represents a major use of Bitmain’s cash flow.
In Bitmax’s view, the main driving factors for Bitmain’s IPO are, firstly, the compulsion of competitors to go public, and secondly, the lack of operating funds after most of the cash flow is invested in BCH. As of March 2018, Bitmain only had approximately US$105 million in cash on its balance sheet. If it did not hold such an amount of BCH, its cash might be close to US$1 billion. At the same time, the business does require a lot of cash, such as the large cash upfront required by TSMC, which peaked at $866 million in 2017.
