ASICMiner, one of the best-known bitcoin companies to issue BTC-denominated equity, released their latest earnings update last week. This was the second such report from the company, with the first released in late July. As both were issued via bitcoin forum threads with links to external files, this report is intended to offer context and additional clarity around those figures.
ASICMiner (AM) initially raised capital by means of an equity offering in 2012, with share priced at 0.1 BTC each. The company generates income by mining directly and indirectly, as well as selling mining equipment to others. Previously a favorite among the bitcoin investing world after making millionaires of $5,000 buy-and-hold IPO investors, AM shares have been under significant pressure in recent months. Exponentially-increasing difficulty in the mining space has made ASICMiner’s share of the network an order of magnitude smaller than it was this summer while also driving down prices on mining hardware.
This report is not a recommendation to buy, sell, or hold securities, nor is it an endorsement of any company. The Genesis Block does not guarantee the accuracy of the figures offered by ASICMiner or in this report.
A notable shift occurred between the time the second and third quarter financial reports were issued. As of the July 23 financials, ASICMiner generated 60% of its revenue from mining and 40% from hardware sales. In the period from then until October 27, the company shifted to 32% of revenue from mining and 68% from hardware sales.
This shift is likely due to a number of factors. The rush to purchase bitcoin mining equipment in recent months has driven up equipment prices, creating an attractive opportunity for providers like AM. Moreover, AM itself has also been transitioning to a new datacenter, meaning their operational capacity faced significant variability and ability to add additional hashing power.
AM has expanded their surplus hardware revenue streams beyond consumer sales. As of early October, AM signed at least two new franchise partners. Under a franchise agreement, AM sends equipment to an external facility in return for a deposit at the market rate of the hardware and a majority of the resulting mining revenue. This enables additional return despite any heat, power, or space restrictions at the company’s own facilities.
- Air cooling datacenter – 47TH/s
- Under franchising – 19TH/s
- Immersion cooling – 5TH/s with 3-5TH/s per day towards 60TH/s in total
The company was also expecting an additional 500 TH/s of first generation chips as of late September. Presumably, most of these would be sold, given the power restrictions of AM’s existing operations. AM’s internal hashing power will likely see its next significant growth when the more efficient second generation chips (65nm or 55nm expected) are made available. Power has been a limiting factor in their current data center and more efficient chips should enable a several factor increase in hashing power with the same limitations. The exact timeframe for that to occur remain, given the unexpected delays in producing second generation chips. AM is also reportedly looking into 40nm processes as well. With competitors like KnC already shipping 28nm hardware, the benefit of an accelerated time to delivery for the Gen2 chips cannot be understated.
While not meant to be a qualitative assessment of ASICMiner’s company or equity performance in any way, some interesting data points arose from organizing the information offered that warrant discussion.
In looking at a series of common equity metrics, it’s clear the market currently places value on short term results and dividend payouts over growth outlook. This is evidenced by a relatively constant dividend yield, with price/earnings and price/book falling dramatically. The mining market seems particularly suited for this type of investor behavior, given the tremendous growth in competition and unclear hardware production times. While AM has historically been responsive, transparent, and generally diligent, investors are seeing earnings reinvested into second generation chips that have yet to be delivered and are already behind the leading edge of technology.
Also interesting were some of the line items in (or not in) AM’s financial statements. Depreciation is listed, but one has to wonder what the appropriate depreciation schedule is for bitcoin mining equipment. US GAAP, for example, calls for a five year schedule for computer equipment, but in an unprecedentedly fast-moving technology market, one can only wonder how this should be accounted. There’s also no indication of tax expense in the statements provided…
Finally, it’s unclear whether or not the current ratio of internal mining to hardware sales is sustainable. With the market increasingly favoring centralized options that reduce costs associated with accommodating a customer base, the 68% sales / 32% mining revenue split from the latest statements may only be able to be maintained for a short period ahead. The franchise plan may eventually become the most viable revenue source from surplus hardware.