Bitmain’s IPO journey is coming to an end

Preface:

Bitmain, which is listed in Hong Kong, has attracted much attention as the only mining machine manufacturer that is still likely to succeed, but this listing journey has almost failed. The current focus of Bitmain may not be listing financing, but turning the ship around in the bear market and tenaciously surviving.

1. Bitmain’s IPO application is about to expire

(1) Bitmain’s losses, business contraction, and massive layoffs

Bitmain's previous IPO application in September will be declared expired on the 26th of this month. Although there is no internal information indicating that this application is destined to expire, judging from Bitmain's recent situation and actions, there is a high probability that this application will not be approved.

According to a previous report by the well-known media Coindesk, it is estimated that Bitmain had a revenue of US$200 million and a loss of US$500 million in the third quarter of 2018.

Sources said that Bitmain's third-quarter updated financial statements showed that its revenue in the first nine months of 2018 exceeded $3 billion, with a gross profit of about $500 million. According to the prospectus Bitmain previously submitted to the Hong Kong Stock Exchange, Bitmain's revenue in the first half of 2018 exceeded $2.8 billion, with a gross profit of about $1 billion.

A simple calculation shows that Bitmain's revenue in the third quarter of 2018 was only about $200 million, and its loss was about $500 million. At the same time, Bitmain's public relations staff responded that "the rumors are untrue, and we will strictly follow the requirements of the relevant laws and regulations on listing and make an announcement at the appropriate time."

Of course, the specific loss figures need to be derived through corresponding accounting rules, but the market shock encountered in the second half of 2018 is an indisputable fact. Many analysts previously believed that Bitmain suffered losses in the second half of 2018, and this is the first time that relevant data shows that its performance has reversed.

In addition, Bitmain's business contraction and staff reduction since the end of last year have also caused a lot of controversy. According to financial news reports, core employees who left the company revealed that Bitmain is undergoing a strategic contraction. In the future, only mining machine businesses and businesses that can generate continuous cash flow will be retained, and all other new businesses will stop expanding - including the BCH business advocated by Bitmain founder Jihan Wu and the AI ​​business advocated by Zhan Ketuan. The core employee said that Bitmain had more than 3,000 employees at its peak. In this round of layoffs, HR revealed that only 30%-50% of the human resources budget was allowed to be retained, and the layoff ratio was as high as 50%-70%.

In general, BCH (Bitcoin Cash), the cryptocurrency that Bitmain is betting big on, is still a long way from replacing Bitcoin; its investment in the field of artificial intelligence chips cannot bring quick returns, and its position in the industry is not high; the unsalable large number of mining machines also shows that the mining machine sales business is struggling.

(2) Bitmain may have given up its IPO application

According to the general IPO process of the Hong Kong Stock Exchange, a company that wants to go public needs to first submit a draft prospectus to them, after which the staff of the Hong Kong Stock Exchange will have several conversations and ask questions with the applicant.

Bitmain is stuck at this step. According to previous reports by Singularity Finance, "A storm has arisen again - Bitmain is accused of joint manipulation of the BCH network" and "The mining boom is gone, but the fate of mining machine manufacturers is ill-fated". During the six months of application, Bitmain encountered a sharp drop in cryptocurrency, a rapid decline in the mining industry, and many negative news, and has been unable to prove to the Hong Kong Stock Exchange that the company is sustainable in the industry. In addition, Bitmain's consistent centralized nature has also discouraged many investors interested in blockchain.

These factors, combined with the HKEX's consistent strictness, make this application even more unlikely. In addition to basic listing requirements such as financial performance records, the HKEX focuses on the suitability and sustainability of the business and the risk assessment of the business to retail investors.

Based on Bitmain’s performance record over the past three years, it can be said that it basically meets the listing requirements, but the key point is that Bitmain cannot prove the sustainability of the company’s business, whether it is mining or artificial intelligence.

On January 24 this year, Hong Kong Exchanges and Clearing Limited Vice Chairman Li Xiaojia also stated at the World Economic Forum in Davos that the three cryptocurrency mining machine manufacturers, including Bitmain, cannot meet the "listing adaptability" requirements, whether it is the mining machine business or the artificial intelligence business.

From the above, we can see that it is impossible to prove the sustainability and adaptability emphasized by the Hong Kong Stock Exchange in less than three weeks, and Bitmain does not have these two points at this time. More importantly, the series of large-scale changes that Bitmain began to make at the end of 2018 are very different from those in the previous prospectus. It can be understood that Bitmain strategically gave up the IPO application and adapted to the new market through transformation and refinancing.

According to the HKEx regulations, if an IPO application does not enter the listing hearing stage six months after submission, it means that the listing application is invalid. If the applicant still hopes to continue to raise funds through listing on the HKEx, it will need to resubmit the application in accordance with the updated annual report three months later. Therefore, Bitmain will not be able to apply for an IPO in Hong Kong again until the second half of 2019 at the earliest.

2. Bitmain focuses on its core business

The IPO has failed in a short period of time. Bitmain’s focus now is not on financing but on adjusting its strategy and refocusing on core businesses such as selling mining machines.

Singularity Finance sorted out a series of recent announcements from Bitmain. On January 26, 2019, Bitmain published its 2019 outlook in its official blog (for the international market). Singularity Finance extracted a paragraph and translated it as follows:

In order to meet the challenges, Bitmain decided to reorganize its business at this important point at the end of 2018. The size and scale of the company's portfolio and business have grown to the point where we are facing a choice. Therefore, we decided to start optimizing the portfolio and streamlining business lines in order to refocus the company's development on the core activities that best support the company's vision. We look forward to witnessing the company's new development in 2019 with everyone's joint efforts.

In general, we see that Bitmain's recent actions are completely consistent with this statement, with the focus on adjusting its strategic direction and focusing on its core business. Furthermore, it can be understood that in the future, only mining machine businesses and businesses that can generate continuous cash flow will be retained, and all other new businesses will stop expanding.

According to the latest report of the well-known domestic media Odaily Planet Daily on March 4, sources said that the Bitcoin mining farm business was adjusted, and the mining farm was separated from Bitmain and managed by Zhan Ketuan; at the same time, the use of mining machines, electricity and maintenance costs were packaged and sold to users through cloud computing power in exchange for cash flow. Even in the layoffs in December last year, all BCH employees were fired.

In addition to the mining business and BCH, the artificial intelligence strategy that was clearly written into the prospectus is also abandoned. The prospectus mentioned: Since the company solved similar challenges posed by big data processing capabilities and low-power chip design when developing ASIC chips, the company believes that the relevant experience can be applied to the development of AI applications for deep learning. It also claims to be a "strong competitor in the AI ​​chip industry" and is likely to join the ranks of technology giants such as NVIDIA and Google.

However, in this round of layoffs, the artificial intelligence business line, which had been highly anticipated, has become the hardest hit area. It is rumored that the layoff rate in the AI ​​business department may be as high as 50%.

As of now, Bitmain has, as mentioned in the outlook, attempted to change its original heavy asset model by laying off a large number of employees and divesting mining, AI, and BCH-related businesses. From the perspective of the Hong Kong Stock Exchange, this may be an attempt to increase sustainability.

At the same time, Bitmain began to focus on its core business, focusing on the production and sales of mining machines. On February 18, Bitmain officially released the second-generation 7nm chip BM1397. If the performance of this chip is consistent with the official description, it will bring some breakthroughs to Bitmain.

Official data shows that the energy efficiency ratio of BM1397 is as low as 30J/T, which is about 28.6% energy-saving compared with the previous generation of products, and the overall performance is more stable. It is understood that BM1397 supports the SHA256 algorithm and can be used for mining cryptocurrencies such as BTC and BCH, and will be used in the next generation of SHA256 algorithm Antminer new products S17 and T17.

Singularity Finance has been focusing on the development of mining machines. Previously, in "Bitmain Releases 7nm Chip, Shenma May Become the Strongest Rival?", we summarized the data comparison of the current market-leading mining machines and concluded that Shenma's 16nm chip mining machine can directly threaten the first generation of 7nm chips released by Bitmain because of the significant reduction in power consumption ratio in the process. 7nm cannot bring much advantage to Bitmain because of the difficulty in mass production and high cost.

If the data that Bitmain's new generation of chips saves 28.6% more energy than the previous generation is true, combined with the market share that Bitmain has already occupied, its leading position in the mining machine sales market can be maintained for a certain period of time. Of course, the mining machine industry has entered the Warring States period, and it is still unknown who will have the last laugh.

The market boom in 2017 helped Bitmain create exponential revenue and profit growth. For example, Bitmain's profit in 2017 reached $1.2 billion. It can be said that the cash reserves accumulated by Bitmain over the years are enough to support it for a long time. However, these funds are not enough to support Bitmain's investment in supporting BCH. Bitmain has temporarily put aside its ambition to replace Bitcoin and seeks survival in the bear market.

In fact, BCH is facing more and more challenges. BCH is a hard fork of Bitcoin expansion, which was created to cope with the increasing transaction demand. However, the off-chain expansion solution Lightning Network has made good progress recently (Singularity Finance has made a detailed report in the upcoming report "Lightning Network Sudden Popularity - Singularity Finance Explores the Real Progress of Lightning Network"), which has helped the Core team, who have always insisted on not changing the Bitcoin code, to win back a victory. Secondly, the fork and computing power war with BSV greatly hurt the community, and the competition has never stopped since then.

At a time when the bear market is far from over, the price of BCH will still restrict the development of Bitmain, which holds a large number of BCH. On the other hand, Bitmain's centralized promotion of BCH's influence and attempt to dominate the decentralized cryptocurrency market have also made many investors untrustworthy.

BCH has become a major constraint and thorn in the side of Bitmain. Even if Bitmain changes direction, it is still closely related to BCH. How to deal with the relationship with BCH may be the biggest difficulty for Bitmain to change direction.

This article comes from Singularity Finance.