BitFuFu: Is mining revenue soaring? Is it just a waste of money?

BitFuFu Inc. (NASDAQ: FUFU), a provider of digital asset mining services and cloud mining services, reported significant growth in revenue in its unaudited second quarter 2024 financial report. However, despite the strong revenue growth, the decline in net profit and adjusted EBITDA reflects the challenges the company still faces in cost management and profitability.

summary:

BitFuFu achieved total revenue of $129.4 million in the second quarter of 2024, up 69.7% from $76.3 million in the same period of 2023. Among them, cloud mining solutions contributed $77 million, up 66.8% from $46.2 million in the previous quarter; Bitcoin self-mining business revenue was $51.1 million, up 81.0% from $28.2 million in the previous quarter. This shows that the company has achieved certain results in expanding its business scale and attracting new customers.

Despite the significant increase in revenue, BitFuFu's net income fell 74.5% from $5.1 million in the same period of 2023 to $1.3 million. In addition, adjusted EBITDA was $8.3 million, down 39.6% from $13.8 million in the same period of 2023. This decline was mainly attributed to unrealized fair value losses on Bitcoin, which reached $16.4 million in the second quarter of 2024, showing that market fluctuations had a negative impact on the company's financial condition.

In terms of cost, the average cost per BTC for self-mining business in the second quarter of 2024 increased significantly from US$19,344 in the same period of 2023 to US$51,887, an increase of 168.3%.

In addition, as of June 30, 2024, BitFuFu held a total of $155 million in cash, cash equivalents and digital assets, an increase of 103.9% from $76 million as of December 31, 2023. Despite the increase in cash reserves, the significant decline in net income shows that the company still faces challenges in capital management and needs to pay more attention to cost control and operational efficiency in the future to cope with market fluctuations and maintain financial health.

Key Financial Data

• Total revenue for Q2 2024 was $129.4 million, an increase of 69.7% from total revenue of $76.3 million for Q2 2023.

• The revenue from cloud mining solutions in Q2 2024 was US$77 million, an increase of 66.8% from the revenue of US$46.2 million from Q2 2023.

• The revenue from Bitcoin self-mining business in Q2 2024 was US$51.1 million, an increase of 81.0% from the revenue of US$28.2 million in Q2 2023.

• The net profit in Q2 2024 was US$1.3 million, while the net profit in Q2 2023 was US$5.1 million, a decrease of 74.5%.

• Adjusted EBITDA (a non-GAAP measure) for the second quarter of 2024 was $8.3 million, down 39.6% from $13.8 million for the same period in 2023. Results for the second quarter of 2024 included a non-cash unrealized fair value loss(4) of $16.4 million on BTC, compared to no fair value loss in 2023. Adjusted EBITDA for the second quarter of 2023 included a non-cash impairment loss of $2.2 million on digital assets.

• As of June 30, 2024, BitFuFu held a combined balance of US$155 million in cash, cash equivalents and digital assets, an increase of 104% compared to the combined balance of US$76 million in cash, cash equivalents and digital assets held by BitFuFu as of the end of last year.

Leo Lu, Chairman and CEO of BitFuFu, said: BitFuFu had another strong quarter, with total revenue increasing by 70% year-on-year. And the registered user base of BitFuFu cloud mining has increased significantly, with more than 395,000 users as of June 30. This is an increase of 87% over the same period last year and a 23% increase over the first quarter of 2024. Cloud mining revenue accounted for approximately 60% of BitFuFu's second quarter revenue. BitFuFu's cloud mining business enables us to effectively lock in the price of Bitcoin as a tool to hedge against Bitcoin price fluctuations. This strategy has proven to be particularly valuable during the recent sharp drop in Bitcoin prices.

BitFuFu Chief Financial Officer Calla Zhao said: As of the end of the second quarter, BitFuFu continued to maintain a healthy balance sheet with a net cash position of US$52.5 million, including digital assets, laying a solid foundation for implementing BitFuFu's growth strategy.

The author believes that although BitFuFu's revenue in the second quarter of 2024 showed significant growth, the company still needs to further optimize its profitability and cost management. In the second quarter of 2024, the company achieved total revenue of US$129.4 million, an increase of 69.7% from US$76.3 million in the same period of 2023, of which cloud mining solution revenue was US$77 million and Bitcoin self-mining business revenue was US$51.1 million, an increase of 66.8% and 81.0% respectively over the same period of the previous year. However, despite the significant increase in revenue, the company's net profit fell from US$5.1 million in the same period of 2023 to US$1.3 million, a decrease of 74.5%. The decrease in net profit shows that despite the increase in market demand and the growth in revenue, BitFuFu is still under pressure in cost control and operating efficiency, especially the adjusted EBITDA, which fell by 39.6% from the same period of the previous year. In addition, the company's non-cash unrealized fair value losses further depressed its profitability. Although the combined balance of cash and digital assets has doubled to US$155 million, how to further optimize the cost structure and improve profitability will be the key to whether the company can achieve sustainable growth in the future.

Revenue and cost analysis

income

In the second quarter of 2024, BitFuFu's total revenue was $129.4 million, an increase of 69.7% from $76.3 million in the second quarter of 2023. The total revenue included $77 million in cloud mining solution revenue, $51.1 million in Bitcoin self-mining business revenue, and $1.1 million in hosting service revenue.

Among them, BitFuFu's cloud mining solution revenue in the second quarter of 2024 was US$77 million, an increase of 66.8% from US$46.2 million in the same period of 2023. This growth was mainly driven by repeat purchases from existing customers and the addition of new customers. Specifically, revenue from active customers in the same period of 2023 was US$47.4 million, accounting for 61.5% of cloud mining revenue; while revenue from new customers acquired after June 30, 2023 totaled US$29.6 million, accounting for 38.5% of cloud mining revenue. In addition, BitFuFu's net dollar retention rate in the second quarter of 2024 was 103%, indicating that the company has performed well in maintaining its customer base and obtaining recurring revenue.

BitFuFu's Bitcoin self-mining business revenue in the second quarter of 2024 was US$51.1 million, an increase of 81.0% from US$28.2 million in the same period of 2023. This increase was mainly due to a 135.0% year-on-year increase in the average price of Bitcoin, resulting in a revenue increase of US$38.2 million. However, the US$15.3 million decrease in revenue caused by the decline in Bitcoin production partially offset the gains from the price increase. Specifically, BitFuFu's Bitcoin production fell from 1014 BTC in the same period of 2023 to 780 BTC, a decrease of 23.1%, mainly due to the increase in blockchain difficulty and the halving of block rewards in April 2024.

In addition, BitFuFu's custody service revenue in the second quarter of 2024 was US$1.1 million, down 40.7% from US$1.9 million in the same period of 2023. This decline was mainly due to the temporary suspension or termination of custody services by some customers in order to reduce mining losses after the block reward was halved in April 2024.

In general, in the revenue structure of BitFuFu in the second quarter of 2024, cloud mining solutions accounted for 59.5% of total revenue, Bitcoin self-mining business accounted for 39.5%, and hosting services and others accounted for 1.0%. Despite the strong revenue growth, the company faces challenges in terms of declining Bitcoin production and declining hosting service revenue. In the future, it needs to further optimize mining efficiency and customer service to ensure continued revenue growth and stable business development.

Costs and Fees

cost

BitFuFu's operating costs in the second quarter of 2024 were US$118.4 million, up 74.2% from US$68 million in the same period of 2023, mainly due to the increase in costs related to the expansion of the company's cloud mining solutions and self-mining businesses, which is consistent with the corresponding increase in revenue in the same period. However, BitFuFu's unaudited financial report did not show detailed data on the operating costs of US$118.4 million in the second quarter of 2024. We can only temporarily assume that the main reason for the increase in operating costs in the second quarter of 2024 was due to the increase in costs related to the expansion of the company's cloud mining solutions and self-mining businesses, as stated in the financial report.

cost

Sales and marketing expenses for the second quarter of 2024 were $0.6 million, a 50% increase from $0.4 million in the same period of 2023. This increase was primarily attributed to increased spending on advertising and promotional activities during the quarter. However, despite the significant year-over-year growth in cloud mining revenue, sales and marketing expenses as a percentage of total cloud mining revenue remained stable at 0.8%, the same as in the second quarter of 2023. This indicates that the company has successfully controlled the proportion of marketing costs relative to revenue while expanding its marketing promotion and maintained a high level of operating efficiency.

General and administrative expenses increased to $1.4 million in the second quarter of 2024, an increase of 133.3% from $0.6 million in the same period of 2023. This increase was primarily due to an increase of $0.5 million in legal and other consulting fees related to the expansion of the Company's business development activities, an increase of $0.3 million in employee costs, and an increase of $0.3 million in additional expenses required as a public company after BitFuFu went public in March 2024. These increases in expenses reflect the Company's investment in business expansion and capital market activities, which, despite increasing operating costs, also lays the foundation for future growth.

Research and development expenses for the quarter remained at $0.3 million, the same as the same period in 2023.

In the second quarter of 2024, BitFuFu did not suffer any impairment losses on digital assets, while in the same period of 2023, the company's digital assets suffered an impairment loss of $2.2 million. This shows that the company managed digital assets more carefully in 2024 and avoided losses due to falling market prices or asset depreciation.

In addition, from January 1, 2024, BitFuFu began to adopt a new accounting standard in advance, namely the FASB fair value accounting standard (ASU No. 2023-08 "Accounting and Disclosure of Crypto Assets"). Under this standard, companies are required to regularly evaluate and report changes in the fair value of crypto assets such as Bitcoin. In the second quarter of 2024, BitFuFu recognized a non-cash fair value loss of $16.4 million in Bitcoin under this standard, which means that the company recorded a book loss caused by the decline in the market price of Bitcoin. This loss is non-cash, which means that it is only a book number and does not represent actual cash outflows.

Due to the increased volume of Bitcoin sold in the second quarter and the higher spot price when Bitcoin was sold, BitFuFu earned $9.9 million in proceeds, compared to $2.9 million in the same period of 2023. This increase demonstrates the company's strategic management ability under favorable market conditions and successfully took advantage of market opportunities to increase earnings. At the same time, the company chose to retain the remaining Bitcoin in the expectation of further capital appreciation.

Overall, BitFuFu has shown some flexibility and strategic thinking in expense management and digital asset processing in the second quarter of 2024. In terms of sales and marketing, general and administrative expenses, the company has maintained relative cost control capabilities while increasing expenditures; in digital asset management, the company has achieved revenue growth and reduced impairment losses through the adoption of fair value accounting standards and favorable market operations. In the future, the company still needs to find a balance between expense growth and revenue improvement to ensure continued financial health and market competitiveness.

The author believes that although BitFuFu achieved significant revenue growth in the second quarter of 2024, showing the company's success in expanding its business scale and attracting new customers, there are still obvious challenges in profitability and cost control. Although total revenue increased by 69.7%, net income fell sharply by 74.5%, reflecting the company's pressure to manage costs and cope with market fluctuations.

Especially in the context of increased volatility in the Bitcoin market and rising difficulty in blockchain mining, the company's cost management in its self-mining business is particularly critical. The average cost of BitFuFu mining rose to $51,887 per Bitcoin, showing the company's shortcomings in coping with increased mining difficulty and market volatility. In addition, the company recorded non-cash fair value losses in the adoption of fair value accounting standards, further depressing its earnings performance.

However, it is worth affirming that BitFuFu has shown a certain degree of flexibility and strategic thinking in expense management and digital asset handling, especially in taking advantage of market opportunities to increase digital asset revenue. In addition, despite the increase in operating costs, the company has successfully controlled the proportion of marketing costs relative to revenue, showing high operating efficiency.

However, the author believes that if BitFuFu fails to increase its efforts in cost control and improving operational efficiency, especially optimizing the cost structure in its self-mining business, the company will face the risk of deteriorating financial conditions amid increased market volatility and may find it difficult to achieve sustainable growth.