Cryptomining giant Bitmain is about to go public in what could be one of the biggest Initial Public Offerrings ever.
The company is filing for an IPO in September with a valuation possibly reaching as high as $18 billion and running at a market cap of $40 – $50 billion.
The IPO will be underwritten by ABC Capital Management and listed on the Hong Kong Stock Exchange in Q4 2018 or Q1 2019. Bitmain already closed a $1 billion pre-IPO financing round led by China International Capital Corporation on July 23 at a $15 billion valuation, double that of Coinbase’s $8 billion valuation.
The Pre ICO round also saw invesments from groups like Tencent Holdings, Ltd., Softbank Group, China National Gold Group and an unnamed sovereign wealth fund managing $15 billion in assets with a minimum investment of $5 million per group.
Prior to this, Sequoia Capital China led Bitmain’s $50 million Series A and $400 million Series B rounds. Sequoia Capital is a VC firm which got in early on ventures like Google and Apple, taking Binance to court over an alleged breach of contract earlier this year.
There are some major players lining up to provide the funding ready for Bitmain’s expansion into the public domain, and the IPO is set to be so big that it could even take the top spot from Facebook as the biggest IPO in the history of the world.
What then?
Expansion
Bitmain founder and CEO Jihan Wu spoke with Bloomberg in June describing a massive AI expansion as well as providing some information on what the company has been earning so far.
Wu said Bitmain booked $2.5 billion of revenue last year and that he and co-founder Micree Zhan together own about 60 percent of the business. While Bitmain has few direct comparables, applying a multiple similar to that of publicly traded chipmakers such as Nvidia Corp. and MediaTek Inc. would give the company a valuation of about $8.8 billion. That would make the co-founders’ holdings worth a combined $5.3 billion, according to the Bloomberg Billionaires Index.
Wu said that an IPO had advantages like allowing early investors such as Sequoia and IDG Capital to cash out.
While it’s too soon to say just how big Bitmain’s IPO will be, one of their main competitors (Canaan Inc) filed for a Hong Kong IPO slated for a $1 billion funding, and in 2017 Bitmain’s revenue was 12 times greater than Canaan’s.
The interview also points to the nature of Bimain’s plans:
“Both companies design custom chips known as application-specific integrated circuits, or ASICs. These are particularly good for the brute-force number crunching required by cryptocurrency miners, who verify virtual currency transactions and earn crypto-denominated rewards by solving complex math problems. ASICs are also useful for the heavy workloads associated with some forms of AI, such as machine learning.”
Wu has stated that AI will be a big part of their business going forward. In October, Bitmain began selling early prototypes of its Sophon BM1680. The ASIC chip, which is sold as part of a $600 accelerator card that you attach to a computer, is designed expressly to speed up machine learning.
Although it doesn’t do everything that high-end graphics cards made by the likes of Nvidia and Advanced Micro Devices Inc. do, it’s more powerful for some kinds of deep learning, and much cheaper. “We are just trying to do something that they cannot take care of well enough,” says Wu, who estimates that as much as 40 percent of Bitmain’s revenue will come from AI chips within five years.
Bitmain already released an AI chip called Sophon 3 months after a competing product from Google already launched – however, Google does not have a foothold in China which gives Bitmain a competetive home advantage.
How Much Could Bitmain Make?
It’s too soon to say – CoinDesk sensationally claimed that the IPO would be worth $18 billion while Bloomberg have published a more conservative $3 billion figure. Whatever the precise figure is, the cryptomining giant stands to make a lot of money enabling it to break into the AI market in an even bigger way. If it’s successful, that is.
From the Pre-IPO deck, it looks like Bitmain is valuing itself at $14 billion based on projections of $1.87 billion net profit for 2018. That projection is highly unlikely given expected Q2/Q3 losses. Will be interesting to see @KPMG‘s numbers for those quarters. #BitmainIPO pic.twitter.com/p3vvEVKHUP
— Samson Mow (@Excellion) August 15, 2018
Blockstream CSO Samson Mow took to Twitter to point out that valuations of around $14 billion were based off of net profit projects for 2018 in excess of $1.8 billion, stating his belief that the company was unlikely to clear that much profit due to the heavy losses sustained in Q2 and Q3 for miners everywhere, which leads in to the next question on whether the IPO can be pulled off.
Here’s the thing – just because the company is worth a lot of money doesn’t mean the IPO will take off and shares will sell like hot cakes.
Investors are wary of cryptocurrency and related companies at the moment with Bitcoin and co tumbling over 75% in value since January. Institutional investors simply aren’t used to dealing with that kind of volatility when it comes to billion dollar investments.
“I don’t think people will be too interested,” said Alex Wong, Hong Kong-based director of asset management at Ample Capital Ltd., in reference to share sales by crypto mining companies. “When the demand for Bitcoin diminishes, their revenue can drop very fast.”
However, if anyone can pull it off it’s Jihan Wu.
Say what you want about the guy, but he’s tenacious – despite only entering the crypto space in 2011, he has created a multi billion dollar company, totally dominated the global ASIC mining market and become a self made billionare in the space a few years.
The company was founded in 2013, with Wu favouring mining over forming an exchange because it came with less legal risks, something that turned out to be a pretty wise move.
In a way, the IPO may prove to be something of a tippping point for the cryptocurrency space as a whole – if Wu can convince institutional investors to support his company even in a bear market, the world will begin to see cryptocurrency as an increasingly legitimized area.
However, if the company fails to go public because no-one wants to touch crypto at the moment, the market could lose confidence and that could lead to an even worse decline than we’re seeing now. We’ll have to wait until September to see how it turns out.
The study further explored the development of blockchain technology in the country and found it to be in its earlier stages.
Remember folks, Crypto is comin!
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