Is it difficult for Ebang International to go public? Lost more than 40 million US dollars in 2019 and will launch an exchange overseas

Text | Ratchet Pizzaring

Another Chinese mining machine company is preparing to go public in the United States.

On April 25, 2020, Ebang International submitted its prospectus to Nasdaq. Data shows that in 2019, Ebang International had a revenue of US$109 million and a net loss of US$41.1 million.

In addition to financial data, the prospectus also revealed many secrets of Ebang International, for example, the mining machine company is planning to launch exchange business overseas. However, its main business - mining machines - is facing the risk of falling behind.

In addition, on the eve of its listing, Yibang International was still embroiled in a number of lawsuits.

With the global stock market in recession and Chinese stocks facing a crisis, Ebang International's road to an IPO on the US stock market is clearly not a smooth one.

"Half of Canaan"

On April 25, 2020, Ebang International, a veteran in the mining machine industry, submitted its prospectus to Nasdaq, starting the process of listing on the U.S. stock market.

The prospectus shows that Yibang International's revenue in 2018 and 2019 was US$319 million and US$109 million respectively; and its net losses were US$11.81 million and US$41.07 million respectively.

What do these data mean? Let’s compare them with Canaan Technology, which went public in 2019.

Canaan Technology's revenue in 2018 and 2019 was US$380 million and US$204 million respectively. Based on this calculation, Ebang International's revenue is about half of Canaan Technology's.

In terms of indicators such as company scale, R&D investment, and mining machine sales, Ebang International is equivalent to "half Canaan".

In 2019, Ebang International sold a total of 5.97 million TH/s of mining machines. In the same year, Canaan's sales were 10.5 million TH/s.

In comparison, Ebang International’s number of employees and R&D expenditure are more than “half of Canaan”.

According to the prospectus, as of the end of 2019, Ebang International had 240 employees. As of June 2019, Canaan had 286 employees.

Yibang International's R&D expenditure in 2018 and 2019 was US$43.5 million and US$13.4 million respectively, and the R&D team has 98 members.

Canaan's R&D expenses in the same period were RMB 189 million and RMB 169 million respectively. As of June 2018, Canaan had 127 R&D personnel, 61 of whom were in the mining machine development team.

"There are two interpretation angles: from an optimistic point of view, Yibang attaches more importance to R&D and invests more in R&D; from a pessimistic point of view, Yibang's R&D input-output ratio is worse," said a commentator.

However, Ebang International operated telecommunications business in its early years, and in the past two years, 1%-3% of its revenue still came from this field. It is possible that part of Ebang International's R&D staff and expenditures belong to the telecommunications business.

Generally speaking, when seeking to go public, mining machine companies will tell a good story to the capital market. Bitmain and Canaan both tell stories about their AI layout.

But Yibang International is different.

In the prospectus, Ebang International stated that it will expand its mining machine hosting and mining farm businesses.

Currently, mining machine hosting is another major business of Ebang in addition to mining machine sales. In 2019, Ebang International earned $15.72 million from mining machine hosting, accounting for 14.4% of its total revenue.

The prospectus shows that the electricity fee for Ebang International's mining machine hosting is US$0.04 (about RMB 0.28) per kilowatt-hour. This is a mid-level level in the industry. Ebang International also admitted that all of its current mining machine hosting customers are mining machine buyers.

In addition, in the prospectus, Ebang International also stated that it plans to launch a digital currency exchange business in the near future.

In the prospectus, Yibang International said it would launch an exchange

Of course, the prospectus points out the risks of this plan: the Chinese government prohibits any entity from operating a digital currency exchange or engaging in digital currency trading business, so Ebang’s exchange will focus overseas.

To date, there is no cryptocurrency exchange with a mining background. Whether Ebang’s exchange can succeed remains to be seen.

Finally, Yibang International also stated in its prospectus that it is developing blockchain-based medical records and financial service products - both of these types of products fall under the category of industrial blockchain.

Performance lagging behind?

The entire mining industry had a tough time in 2019. Both Ebang International and Canaan Technology suffered significant losses and revenue declines.

For example, in 2018, Ebang International sold 415,900 mining machines at an average selling price of US$737; in 2019, Ebang's mining machine sales fell to 290,000 units, and the average selling price also fell to US$304.

In the prospectus, Yibang International stated that the company's performance has been and will continue to be significantly affected by fluctuations in Bitcoin prices, especially the huge negative impact brought about by the sharp drop in Bitcoin prices.

There are more challenges that Yibang International needs to face.

The core competitiveness of mining machine manufacturers is the technical level of their mining machines.

The energy efficiency ratio is the most important indicator to measure the technical level of mining machines. Under the same electricity bill, the lower the energy efficiency ratio, the more coins the mining machine can mine.

Currently, Canaan’s latest mining machine, Avalon A1166, has an energy consumption ratio of 47W/T.

The latest mining machines from Bitmain and Shenma have even controlled the energy efficiency ratio to less than 30W/T.

In contrast, Yibang International seems to be lagging behind.

The prospectus shows that Ebang International’s current mining machine products are mainly the Ebit E12 and E10 series.

Ebang International's Ebit series mining machines

Among them, the Ebit E12+ mining machine released in June 2019 is the latest product of Ebang International. Its computing power is 55T/s and its energy efficiency ratio is 57W/T, which is comparable to Canaan's previous generation mining machine A1066 Pro.

Therefore, at present, in terms of mining machine performance, Bitmain and Shenma are in the first echelon, Canaan is in the second echelon, and Ebang International can only be in the third echelon.

The backward performance of mining machines has made Ebang International’s mining machines “unsellable at a high price”.

Financial report data shows that in 2019, the price per terabyte of computing power of Canaan Technology's mining machines was US$19, while the price per terabyte of computing power of Ebang International's mining machines was only US$15.

The performance of Ebang mining machines lags behind. What is the problem? The outside world speculates that there is a problem with Ebang’s chip supply chain.

The prospectus shows that the latest generation of 8nm and 7nm chip mining machines under Ebang International were designed in 2019, but have not been released yet. In addition, the DASH and Monero mining machines designed by Ebang in 2018 and 2019 respectively have not been released yet.

"We will further determine when to release these products based on market demand and conditions," Yibang International wrote in its prospectus.

However, in reality, Ebang International also has its own customer base. Many traditional companies entering the mining industry often choose Ebang's mining machine products.

"Most of Ebang's Ebit series mining machines are sold to 'big players', and grassroots miners don't buy much." A miner told Yiben Blockchain.

Public information shows that a subsidiary of A-share listed company Huatie Technology purchased 24,000 mining machines from Yibang in May 2018, with a unit price of 4,344 yuan per machine.

In addition, Yindou.com, a P2P platform that collapsed in 2017, was also exposed to have purchased mining machine products worth 500 million yuan from Ebang International from the end of 2017 to the beginning of 2018.

Yibang International is favored by major customers, which may be related to its sales model. The prospectus shows that Yibang International's mining machines are all sold through a direct sales model, without any distributors, agents or channel dealers.

Litigation

Against the backdrop of lagging performance and a cooling industry, Yibang International's road to listing is also facing the entanglement of multiple lawsuits.

In September 2018, Yibang International was involved in the P2P crash of Yindou.com. Yibang made a profit of 500 million yuan from Yindou.com, and some Yindou.com investors questioned whether this was a transfer of assets.

In the same year, Ebang International was sued by miner Ma Xiaoyun, who claimed that the 500 E10 mining machines he purchased at a cost of 13 million yuan frequently malfunctioned, and 873 units had to be returned for repair within three months. The shipping cost for the repairs alone was as high as 17,000 yuan.

Ma Xiaoyun proposed to return the goods to Ebang International, but was rejected. Ebang International only agreed to sign a supplementary agreement and pay additional compensation equal to 50% of the total computing power of the original contract. The lawsuit has not yet been concluded.

In November 2019, Ebang International sued chip company VeriSilicon Microelectronics in Hong Kong, accusing it of providing 2,589 10nm Samsung wafers with quality defects, causing Ebang International to suffer significant losses, and demanded compensation of US$25.1 million.

VeriSilicon is the middleman between Ebang and Samsung. This is because before May 2018, Ebang International was not a certified customer of Samsung and could not purchase wafers directly from Samsung.

In 2019, VeriSilicon Microelectronics submitted an IPO prospectus to the Science and Technology Innovation Board under the name of VeriSilicon Shares, which also disclosed relevant information about the lawsuit. VeriSilicon Shares stated that Samsung was responsible for wafer production and delivery, and VeriSilicon was only responsible for communication and coordination between Ebang and Samsung.

The cooperation between Ebang, Samsung and VeriSilicon eventually became a mess.

In December 2019, the A-share listed company Zhongying Internet issued an announcement stating that its subsidiary purchased mining machines from Yibang, paid the money, but did not receive the goods, and Yibang was suspected of contract fraud.

Yibang accused Zhongying Internet of malicious reporting and filed a counterclaim, demanding that the other party settle the overdue payment. The two sides were caught in a Rashomon of whether the money was not paid enough or the goods were not delivered.

Judging from many cases, Ebang International did not make any fatal mistakes. Therefore, people in the mining industry often joke that Ebang's litigation is just "bad luck".

The IPO history of Yibang International can be described as full of twists and turns.

Founded in 2010, Ebang International was successfully listed on the New Third Board as early as 2017, becoming the earliest listed mining machine company.

However, the liquidity of the New Third Board obviously could not satisfy Yibang. In 2018, Yibang was delisted from the New Third Board and began to switch to Hong Kong stocks.

At that time, the mining machine industry was booming, and Yibang's financial data was also excellent: net profit increased 15 times in three years. By the first half of 2018, it achieved revenue of approximately US$304 million and net profit of US$135 million.

However, the bear market in 2018 brought Yibang International to its lowest point. In the second half of 2018, Yibang's revenue was almost zero, and its net loss for the whole year was US$11.8 million.

In June 2018, Ebang International submitted its first IPO application to the Hong Kong Stock Exchange. However, due to the Yindou.com incident, the application became invalid in December of that year.

In the same month, Yibang International again submitted an application for listing to the Hong Kong Stock Exchange, but also failed.

After two failed applications for listing on the Hong Kong stock market, Ebang International had to seek another way out. Nasdaq, which had already accepted the mining machine company Canaan Technology, naturally became Ebang International's next destination.

This is Yibang International's fourth attempt to enter the capital market after being listed on the New Third Board once and applying for listing on the Hong Kong stock market twice.

Bitmain's plan to go public in the United States was ultimately stranded due to an unexpected power struggle among the founders.

Canaan, which was successfully listed on the Nasdaq at the end of 2019, has seen its share price fall by half from its issue price.

This time, can Yibang International, which is seeking to go public, succeed?