Leaked Data Calls Bitmain’s Cash Flow Into Question

In a new 17-page analysis of crypto mining giant Bitmain’s current status, researchers at Alliance Bernstein claim that “Bitmain’s uninterrupted cash flow unfortunately is now in question as competitors may catch up in technologies.”

Bitmain is currently preparing to launch an IPO which is expected to raise even more money than when Facebook went public.

As Bitmain has made its pre-IPO financing rounds, the company’s finance report presentations have been leaked to numerous credible sources. Analysts at Bernstein have compiled the leaked data to reveal some fascinating information inside the finances of one of the biggest businesses in crypto.

Bitmain’s 2017 Revenue

According to the leaked reports, Bitmain recorded $2.5 billion in revenue in 2017. Seven percent of Bitmain’s reported revenue came from cryptocurrency mining. Bitmain dominated the mining rig market with “77% unit share in Bitcoin and ~85% in all cryptocurrencies last year,” the report reads. “ASIC chip was the key differentiator and represented ~80% of COGS. GM for mining was even higher (50-76%) but more volatile and most (60-70%) of the mining cost came from depreciation.”

Suggested Reading : Learn more about proof of work (PoW) mining in our guide to blockchain consensus mechanisms.

Bitmain’s Cash Flow in Question as Technological Edge is Lost

Despite a fantastic 2017 and projections for an even better 2018, the Bernstein research suggests trouble may lie ahead for Bitmain. According to analysts, downturns in the crypto market and the company’s disintegrating monopoly on mining equipment appear to be causing serious interruptions in cash flow.

“Bitmain’s cash need mainly comes from working capital (inventory and wafer prepayment),” reads the Bernstein report.

The report continues,

“In 2017 Bitmain had the best mining rig and was able to fund the working capital with customer deposits and hence happily saw its operating cashflow surge to US $1.3B, on our analysis. As coin price plummeted, customer deposits dwindled & Bitmain was forced to draw from its operating cash flow in 1Q18. Going forward, the competitiveness of Bitmain’s chips is in question, as Bitmain failed in a 10nmchip & possibly other projects too. Rivals now may have caught up in technologies and Bitmain’s inventory (US$1.2B as of 1Q18) may face major a write-down risk.”

Additionally, it has been reported that Bitmain, as a central promoter for Bitcoin Cash, likely holds as much as 5.7 percent of BCH’s total supply. While these holdings would have been valued at nearly $890 million at the beginning of the year, Bitmain’s BCH holdings “[pose] another major risk as BCH is illiquid and has depreciated nearly 20%.”

Bitmain will begin filing for its IPO in September and aims to be listed on the Hong Kong Stock Exchange in Q4 2018 or Q1 2019. The company has revealed that its initial public offering could be as high as $18 billion (twice the size of leading crypto exchange Coinbase‘s IPO) at a $50 billion market capitalization. Bitmain has already raised an estimated $1 billion in its pre-IPO round.

The full Bernstein research report can be found here.