BY Fintan Ng - September 27, 2018
Bitmain officially files for IPO in Hong Kong
Bitmain, the world’s largest bitcoin mining rig manufacturer, officially filed for an initial public offering (IPO) with the Hong Kong Stock Exchange on Sept 26.
Previous reports noted that the Beijing-based company was seeking to raise as much as US$18bil from the IPO, giving it a potential market capitalisation of US$40bil to US$50bil.
However, the draft prospectus filed with the stock exchange did not give an indication as to share price nor how many of the company’s shares will be offered for sale or even when the listing will take place.
A previous CoinDesk report says investment banks with knowledge of the listing exercise calculated that the price-to-earnings ratio to be within 20 times within the first publicly traded year.
The listing could take place as early as the last quarter of 2018 or the first quarter of next year with the sole underwriter being China International Capital Corp, an investment bank.
Information, in parts redacted, was also given on investors that have bought stakes of between 1.03% to approximately 3.14% in the company.
According to previous reports, cofounders Wu Jihan and Zhan Ketuan hold a combine 60% stake in the company.
Besides Class A shares that they hold, the duo will maintain control of the company through the Class B shares, which gives them 10 votes per share.
Notably the financial information on the second quarter ended June 30, 2018, which was not there previously, is now on the consolidated statements and gives some indication as to how some of the factors, including crypto prices, have affected the company’s earnings.
It showed Bitmain posting a 33.5% gain in net profit to US$952.18mil compared to the same quarter of last year due to mining hardware sales, which surged 1,115%.
Revenue for the quarter under review surged by well over eight-fold to US$2.84bil as sales volume saw a significant increase of 1,336.2%.
Previously the company did not reveal or update documents filed for the IPO for the second-quarter and did not disclose the quarter’s financial information even after the second quarter was well over.
But the financial information does show some uncertainties ahead for the company that may impact investor appetite for the listing.
The latest quarter’s data showed that the average selling price of the company’s mining hardware has declined by nearly 15.3% to US$1,171 compared to the same quarter of 2017.
The company attributed the decline to the decreased expected economic return per unit cryptocurrency mining hardware as a result of the increased network mining difficulty.
Interestingly, the company’s mining pool service, which comes under BTC.com and Antpool, has been churning out the revenue largely because of the increasing scale.
Bitmain’s dominance in mining pools continues to be a source of discontent and controversy in the crypto world. According to blockchain.info, over a 24-hour period, Antpool’s hashrate, or computing power needed to generate bitcoins, stood at 18.8% while BTC.com’s stood at 16.7%. They were respectively the largest and second-largest mining pools in the industry.
The revenues from mining farm service and proprietary mining has also increased, by 296.2% and 297.8%, respectively.
Meanwhile, gross profit rose 670.5% on the contribution from hardware sales but gross profit margin decreased to 36.2% in the second quarter from 48.7% in the comparable quarter of 2017.
Costs has also risen for the company. With the surge in sales volume, cost of sales increased by 1,189.3% while selling expenses jumped by 1,140% primarily due to salaries for the sales and marketing staff as well as advertising expenses.
Also, administrative and other operating expenses increased by 291.1% on increase in salaries and benefits, expenses related to share incentive scheme and other professional fees while research and development expenses increased by almost 684% to US$87mil. The company has 2,594 employees as of June 20, 2018.
Cryptocurrency holdings, as of June 30, 2018 was valued at US$886.93mil. While the company did not give a breakdown, it revealed holdings in bitcoin, bitcoin cash, ethereum, litecoin and dash.
Image courtesy of Bitmain website.