That Bitmain is a behemoth is hardly news.

CoinDesk had previously reported that the cryptocurrency mining hardware maker brought in revenues of $2.5 billion in 2017 and $2 billion in Q1 2018, but with the publication on Wednesday of Bitmain’s draft initial public offering (IPO) prospectus – a step towards its much-anticipated listing on the Hong Kong Stock Exchange, the firms’ sheer size and blistering growth can now be parsed in significantly greater detail.

The 438-page prospectus includes detailed information about Bitmain’s sales and profitability going back to 2015, as well as a breakdown of its revenues it takes in from different lines of business.

The prospectus also includes a picture of Bitmain’s costs – which are particularly notable, given that they illustrate how much the company is investing in growth and how unpredictable returns on that investment can be due to volatile cryptocurrency prices.

Revenues and profits

Bitmain’s dominance of the global market for cryptocurrency mining equipment is common knowledge (its market share is 75 percent, according to the prospectus), and its financial statements show just how lucrative it is to be in that position.

From just $137.3 million in 2015, Bitmain’s sales logged a blistering 328 percent compound annual growth rate to reach $2.5 billion in 2017. At $2.8 billion, this year’s revenues had already surpassed last year’s total by the end of June, according to the document.

Profits have also shot up in a few short years, from $48.6 million in 2015 to $952.6 million in 2017 – a 280 percent compound annual growth rate. While profits for the first half of 2018 have not quite surpassed the total for the whole of last year, they are close, at $952.2 million.

For comparison, Nvidia, a chip manufacturer that enjoyed a windfall when crypto miners began to adopt its graphics processing unit (GPU) chips, but which long predates the invention of cryptocurrency, earned $3 billion on $9.7 billion in revenues in 2017.

Intel, the semiconductor giant, earned $9.6 billion on $62.8 billion in revenues.

Revenue breakdown

The recently published prospectus also provides a detailed view of the sources of Bitmain’s revenues.

The breakdown makes it clear that the bulk of Bitmain’s sales have consistently come from selling mining hardware, specifically the application-specific integrated circuits (ASICs) that have displaced GPUs in a number of markets (in many cases, because Bitmain introduced the ASICs).

Notably, however, mining hardware sales have grown as a share of total revenue, from 79 percent in 2015 to 94 percent in the first half of 2018.

The revenues contributed by other lines of business – most importantly, proprietary mining – have shrunk as a proportion of Bitmain’s total sales. In absolute terms, however, revenues from every source grew from 2015 to 2017 and appear set to grow again by the end of 2018.

This breakdown could potentially raise questions about shrinking revenue diversification at Bitmain, as the company depends more and more on selling mining hardware. On the other hand, this monolithic category (“mining hardware”) hides Bitmain’s recent expansion into new sorts of mining hardware, which decreases its reliance on the market for bitcoin and bitcoin cash ASICs.

“We have focused on developing mining hardware with different algorithms covering major cryptocurrencies, including Bitcoin, Bitcoin Cash, Ether, Litecoin, Dash and Zcash,” the prospectus says, “which makes us one of the few companies offering mining solutions for various cryptocurrencies.”

Costs and investments

Crunching Bitmain’s revenue and profit numbers, something stands out: profit growth has lagged behind revenue growth by a noticeable margin, meaning that the company is either re-investing money in the business, or facing higher costs.

It turns out, the answer is a bit of both. The largest increase in spending came from materials and manufacturing costs, which the company notes in its prospectus: “represent our payment to our production partners for the fabrication and the packaging and testing of our ASIC chips.”

The steep rise in these costs – from just $93.7 million in 2017 to $1.5 billion in the first half of 2018 – signal that Bitmain is ramping up production fast.

The increase in manufacturing and materials costs, the firm notes, “is in line with our business growth.”

The picture is not entirely rosy, however.

The company took two big hits of around a quarter-billion dollars each in 2017 and 2018, which it describes as “provisions for impairment of inventories and prepayment to suppliers.”

The document explains that these costs are ultimately due to the unpredictability of cryptocurrency prices: “the fluctuation of certain cryptocurrencies caused the anticipated selling price of certain mining hardware below their cost.”

Crypto and other assets

Bitmain is vulnerable to cryptocurrency market turns on more than one front.

While it does mine on its own behalf and takes a share of mining pool rewards, those lines of business accounted for a fraction of revenues in the first half of 2018. Most of Bitmain’s (considerable) cryptocurrency holdings, the prospectus notes, come from sales of hardware settled in crypto.

At the end of June, Bitmain held $886.9 million worth of bitcoin, bitcoin cash, ether, litecoin, dash and other crypto assets – more than twice what it held in fiat currency.

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At 28 percent of total assets, Bitmain’s crypto holdings made up a slightly smaller share in June than at the end of 2017 (30 percent). However, given the broad decline in crypto assets’ value in dollar terms, back-of-the-envelope math suggests that Bitmain’s crypto holdings grew considerably, in terms of the number of tokens.

Brady Dale contributed reporting

ASICs image via Shutterstock