Bitmain, the Crypto Mining Giant, on Target for $10-B in Revenue this Year
TechCrunch has learned through a company fund raising overview that Beijing-based mining equipment seller Bitmain hit a quarterly revenue of approximately $2-B in Q-1 of Y 2018.
Despite a slump in bitcoin prices since the beginning of the year, the company is on track to become the 1st blockchain-focused company to achieve $10-B in annual revenue, assuming that the cryptocurrency market fall further.
Fortune previously reported that the company had $1.1-B in profits in the same Quarter, a number in line with these revenue numbers, given a net margin of around 50%.
That growth is extraordinary.
From the same source seen by TechCrunch, Bitmain’s revenues last year were $2.5-B, and around $300-M in the year before that. The company reportedly raised a major venture round of $300-400-Mfrom investors, including Sequoia China, at a valuation of $12-B.
For comparison, popular cryptocurrency wallet Coinbase made $1 billion in revenue in 2017.
In addition, Nvidia (NASDAQ:NVDA), a California that also makes computer chips, generated revenues of $9.7 billion in its 2018 fiscal year. Nvidia’s revenues were $3.21-B in Q-1 fiscal year 2019, and historical revenue figures show a general seasonal uptrend in revenue from Q-1 through Q-4.
The same overview also shows that Bitmain is exploring an IPO with a valuation between $40-50-B. That would represent a significant uptick from its most recent valuation, and is almost certainly dependent on the vitality of the broader blockchain ecosystem.
Several of Bitmain’s competitors have filed for IPO since the beginning of Y 2018, but most of them are significantly smaller in size.
For example, Hong Kong-based Canaan Creative filed for an IPO in May, and the latest was that it was aiming for $1 to 2-B in fundraising with Y 2017 revenue of $204-M US.
When contacted for this story, Bitmain declined to comment.
Bitmain is the world’s dominant producer of cryptocurrency mining chips known as ASICs, or Application-Specific Integrated Circuit, was founded by Jihan Wu and Micree Zhang in Y 2013, and the company is currently HQ’d in Beijing.
Cryptocurrency mining is the process of checking and adding new transactions to bitcoin’s immutable ledger, called the blockchain. The blockchain is formed by digital blocks, where transactions are recorded. The act of mining is essentially using math to solve for a cryptographic hash, or a unique signature if you will, to identify new blocks.
The general mining process requires massive processing power and incurs hefty energy costs. In exchange for those expenses, miners are rewarded with a number of bitcoins for each block they add onto the blockchain.
Currently, in the case of Bitcoin, the reward for every block discovered is 12.5 bitcoins. At the current average trailing Bitcoin price of approximately $6,300, that is about $81,00 up for aquisitation every 10 mins, or $11.5-M a day.
Bitmain has several business segments.
The !st and primary one is selling mining machines outfitted with Bitmain’s chips that are usually a few hundred to a few thousand dollars each. The latest Antminer S9 model is listed as $3,319.
And 2nd you can rent Bitmain’s mining machines to mine cryptocurrencies.
And 3rd, you can participate to mine Bitcoin as part of Bitmain’s mining pool.
A mining pool is a joint group of cryptocurrency miners who combine their computational resources over a network. Bitmain’s two mining pools, Bitmain’s AntPool and BTC.com, collectively control more than 38% of the world’s Bitcoin mining power per BTC.com now.
Despite its rapid rise to success, Bitmain is ultimately dependent on the price of cryptocurrencies and overall crypto market fluctuations.
When there is a Bull market in crypto, investors would be willing to give a different valuation multiple to the company than if it were in a Bear market. In a bear market, the margins are reduced for both the company as well as for its customers, as the economics of mining cryptocurrencies are no longer as compelling.
We have gone through several bull and bear crypto market cycles. According to Frost & Sullivan, in Y 2017, Bitmain is estimated to have 67% of the market share in Bitcoin mining hardware, and generated 60% of computing power.
One of the fundamental challenges facing any cryptocurrency mining manufacturer such as Bitmain is that the valuation of the company is largely based off the price of cryptocurrencies.
The market in 1-H of Y 2018 has shown that no one really knows when bitcoin prices and the cryptocurrency market will start picking up again.
Additionally, according to Frost & Sullivan, the ASIC-based blockchain hardware market, which is the market segment that includes Bitmain and Canaan, will see its compound annual growth rate (CAGR) slow to around 57.7% annually between Y’s 2017 to 2020, down from 247.6% between Y’s 2013 and 2017.
It looks as though Bitmain has planned well ahead to prepare for these macro risks and exposures. The company has raised significant private funding and has been expanding its business into mining new coins and creating new chips outside of cryptocurrency applications.
First, with it’s existing mining rigs, Bitmain can essentially broaden into all SHA256-related coins.
So, coins such as Bitcoin, Bitcoin Cash and Litecoin can all be mined on Bitmain’s equipment. The limitation here is largely how fast they can build up more mining equipment and mining centers. The company has broadened its geographic reach by developing new mining centers.
Recently, Bitmain revealed that it will build a $500-M blockchain data center and mining facility in Texas as part of its expansion into the US market, aiming for operations to begin by early Y 2019.
And, Bitmain is also looking to launch their own AI chips by the end of Y 2018.
The AI chips are called Sophons, originated from the Key alien technology in the famous trilogy, the Three-Body Problem, by Liu Cixin.
If things go as planned, Bitmain’s Sophon units could be training neural networks in data centers around the world. Bitmain’s CEO Wu once said that in 5 years, 40% of revenues could come from AI chips.
And last, Bitmain has been equipping itself with cash. Lots of it, from a number of the top and largest investors in Asia.
Two months ago, China Money Network reported that Bitmain raised a Series B round, led by Sequoia Capital China, DST, GIC and Coatue in a $400-M raise, putting the company at a value of $12-B.
Last week, Chinese tech conglomerate Tencent and Japan’s SoftBank, another tech giant whose 15% stake in Uber makes it the drive-hailing app’s largest shareholder, joined the investor base.
For Bitmain, there are many reasons to stay private as a company, including keeping its Quarterly financials private as well as dealing with market fluctuations and the ongoing volatility and uncertainty in the cryptocurrency world. However, the downside is that early employees may not get liquidity in their stock options until much later.
Wu has said that a Bitmain IPO would be a “landmark” for both the company and the cryptocurrency space. However, with the current rich crypto private market financing, it is not so bad of an idea to continue to raise private money and stay out of the public eye.
Once Bitmain’s financials become more diversified and cryptocurrency becomes more widely adopted worldwide, the world may then be ready for this $10-B+ revenue blockchain company.
By Joyce Yang
Paul Ebeling, Editor
Have a terrific weekend.