Bitmain is rumored to launch an IPO this week, and its 30 billion valuation target may face severe tests

Bitmain, the dominant mining machine company, announced last weekend that it would finally launch its IPO this week , with an expected valuation target of around $30 billion. However, industry insiders generally believe that Bitmain still faces many internal and external challenges in completing the IPO process, and even if it is successfully listed, the final valuation may be significantly reduced , or even return to the original point of $15 billion in the pre-IPO round.

According to a report by the WeChat public account "IPO Early Knowledge" citing a source, Bitmain will submit materials to the Hong Kong Stock Exchange this week to officially start the listing process. The main underwriter of this IPO is CICC, and the target valuation of the listing is US$30 billion .

In the past two months, Bitmain has completed two rounds of private equity financing, with valuations of US$12 billion and US$15 billion respectively. If it goes public at US$30 billion , the valuation will double again .

Coincidentally, Bitmain has been repeatedly exposed to negative news in recent days . After Tencent, Softbank and DST have publicly denied their participation in its pre-IPO investment, Wu Jihan finally broke his silence on Twitter last week, responding that the rumor of Temasek's withdrawal of investment was false news. He said: " Most of the news about Bitmain is the same as this one, which is fake news ."

Image｜Wu Jihan’s tweet (Source: Wu Jihan’s Twitter)

However, Bitmain hopes to go public at $30 billion. Will this valuation come true?

Industry insiders generally believe that Bitmain will face many internal and external challenges in its IPO, and from an investor's perspective, its valuation is likely to be further revised down .

Especially if, after Bitmain submits its prospectus, data confirms that its revenue and profits in the latest quarter have indeed shrunk significantly, then the estimated valuation "should be much lower." Some market insiders have speculated that its valuation is likely to be significantly revised down to the original point of US$15 billion in the pre-IPO round .

Compared with the largest IPO of the year, Xiaomi's Hong Kong listing, which was completed in the first half of the year, the expected valuation was as high as US$110 billion when it was applied in May, and was finally revised down to US$55 billion , which is almost halved .

From the external environment, many industry insiders familiar with Hong Kong stock brokers told DT that most IPO underwriting cases in the Hong Kong stock market this year have been priced at the lower limit but still broke the issue price. Now brokers have accumulated too much pressure and are in a very bad mood. Coupled with the uncertainty of the overall economic situation, the pressure will increase in the second half of the year, which will inevitably lower the prices of subsequent IPO companies.

Especially in the mining industry , due to the sharp drop in the price of coins , the market atmosphere has been pessimistic recently , and investors are even more nervous . Industry insiders believe that in such a pessimistic atmosphere, investors will make the most conservative assessment. In order to convince them to pay, Bitmain's valuation must be low enough.

Looking at the internal factors, Bitmain is also shrouded in three major negative factors.

First, the price of mining machines has collapsed by nearly 90% , and the inventory has skyrocketed . Samson Mow, chief strategy officer of Blockstream, a blockchain technology company that has repeatedly revealed news about Bitmain, pointed out on Twitter that compared with the high point at the beginning of the year, the current price of mining machines has plummeted by 85%, and Bitmain has accumulated as much as $1.24 billion in inventory .

The largest single source of revenue has been almost cut off , and it is difficult to see any signs of recovery in the short term . This is the most fundamental reason why Bitmain’s valuation is bound to be severely revised down.

Figure | Samson Mow tweeted that the price of mining machines has plummeted by 85%, and Bitmain has accumulated as much as $1.24 billion in inventory. (Source: Samson Mow Twitter)

The second is the failure of the Bitcoin Cash (BCH) transformation , which has locked up a large amount of funds . Bitmain led the Bitcoin hard fork last year and created a new cryptocurrency Bitcoin Cash (BCH), hoping to replace the original Bitcoin with BCH. The outside world even likened BCH to the tokenization of Bitmain.

But a year later, the promotion of BCH has achieved little results, and as of the first quarter of this year, Bitmain has hoarded more than one million BCH . According to the average purchase cost, these one million BCH cost about US$1 billion.

However, as the price of the currency plummeted, its actual value has now been cut in half, which is equivalent to the evaporation of about US$500 million. Moreover, Bitmain, which is cautious about the consequences, cannot cash out this asset without destroying the price of BCH . In other words, Bitmain has been seriously trapped .

Vijay Boyapati, a former Google engineer who often comments on cryptocurrencies, pointed out that the IPO is a way for Bitmain to solve liquidity problems, but once listed, investors will certainly ask Bitmain to explain why it is investing a large amount of profits in a cryptocurrency with an uncertain future .

Figure｜Bitmain Digital Currency Financial Overview (Source: Samson Mow Twitter)

Third , the progress of AI chip transformation is unclear , and the technological advantage is lost . As we all know, Bitmain has long announced that it will transform into AI and has made a big move to recruit talents. But so far, Bitmain's AI chips still lack results.

Research firm Bernstein also issued a report last week, pointing out that Bitmain may be losing its technological advantage, its chip competitiveness is questionable , and it may be overtaken by competitors . Bernstein even suggested that Bitmain's chip supplier TSMC should require Bitmain to pay in full in advance before accepting orders in the future.

However, an industry insider close to Bitmain privately said that if we only look at the current stage, Bitmain's competitors do seem to be developing faster. However, judging from the current market situation, even if the new generation of mining machines is launched, it may not bring much substantial benefits, so Bitmain is more likely to focus on developing new businesses . As it officially starts to promote listing, these results will probably be made public soon.

However, another investment industry insider analyzed that there is a very simple principle in the investment market, which is that it is most afraid of uncertainties and avoids explanations , and Bitmain is in this situation now .

In fact, with the current high level of doubts in the market, avoiding and covering up is no longer the best strategy for Bitmain. The best strategy is to face the market head-on, eliminate uncertainty , set the valuation within a reasonable range acceptable to the capital market , and promote the IPO as soon as possible.