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Seeking Alpha 2023-05-31 20:44:33

BIT Mining Limited: Selling Ethereum And Holding Dogecoin

Summary BIT Mining Limited reported $72.9 million in Q1-23 revenue, up from $61 million in the prior quarter. While the company touts 4 distinct business models, 82% of the company's revenue comes from mining pools. BIT Mining continues to burn cash and crypto treasury management decisions raise concerns. When I last covered BIT Mining Limited ( BTCM ) in early September, it was just days before the long awaited transition of Ethereum ( ETH-USD ) from a Proof of Work to Proof of Stake consensus mechanism. In my article, I cautioned that 76% BIT Mining's self-mined crypto revenue came from Ethereum mining - revenue that would go away following the consensus mechanism change. After "The Merge" last September, BIT Mining Limited has had to adjust its self-mining approach. In this update, we'll look at the current status of BIT Mining's revenue segments and balance sheet following Q1 earnings. Full Revenue Picture Total Q1 revenue for BIT Mining Limited came in at $72.9 million. While this is up 19% over Q4, the company's Q1 performance represents a dramatic 75% decline in revenue year over year. This isn't necessarily unique to BIT Mining Limited as many crypto-related companies have seen drastic revenue declines over the last year or so. BIT Mining aims to have a diversified revenue generation model that includes mining pools, datacenter services, and miner manufacturing in addition to the company's self-mining segment. As expected last year, the self-mining portion of the revenue fell apart following The Merge falling from $7.1 million in Q3-22 to just $1.9 million the following quarter. At the end of Q1, crypto self-mining revenue came in at $6.2 million. This was up 226.3% sequentially but down nearly 73% from the year-over-year comp. Revenue from: Q1-22 Q2-22 Q3-22 Q4-22 Q1-23 QoQ YoY Self-mining $22.9 $14.8 $7.1 $1.9 $6.2 226.3% -72.9% Mining Pool $272.3 $178.5 $88.5 $53.9 $60.0 11.3% -78.0% Datacenter Services $1.5 $2.2 $1.4 $5.2 $5.9 13.5% 293.3% Source: BIT Mining Limited, millions Manufacturing revenue is a distant 4th place in terms of revenue segment rank and appears to have only accounted for $0.8 million to date. As of last quarter, datacenter services are the only meaningful area of growth for the company and it's a small percentage of revenue for the overall business. BIT Limited is still highly reliant on mining pool revenue as it makes up over 82% of the company's total figure. Though it should be noted that the company has reduced its reliance on mining pool revenue from 92% in Q1-22. In addition to losing the ETH mining revenue last year, the company also cited declines in crypto market prices as a cause for the reduction in crypto mining revenue as well. Due to the failing economics of the business, BIT Mining made the decision to suspend certain types of BTC mining rigs. For the quarter ended March 31st, BTCM was only able to mine 99 BTC with recognized revenue of $2.1 million. The majority of the company's mining revenue now comes from mining Dogecoin ( DOGE-USD ) and Litecoin ( LTC-USD ). Balance Sheet At the end of March, BIT Mining Limited had $40.2 million in current assets. This was up from $35.3 million at the end of 2022; however, the majority of that $4.9 million increase is from a $3.4 million revaluation in the company's cryptocurrency holdings. Cash declined from $5.4 million at the end of 2022 to $4.6 million at the end of March: BIT Mining Limited There was a bit of a rotation in the makeup of the crypto holdings as well. The company's crypto treasury is comprised of Bitcoin ( BTC-USD ), ETH, and DOGE: Holdings Q4-22 Q1-23 QoQ BTC 289 289 0.0% ETH 4,845 3,243 -33.1% DOGE 42,800,000 69,500,000 62.4% Source: BIT Mining Limited Quarter over quarter, the company didn't see any change in the BTC on the balance sheet. However, it did sell 1,602 ETH and grew DOGE holdings by nearly 27 million DOGE. This means roughly $5 million of BIT Mining Limited's $18 million in crypto holdings are allocated to a meme coin. The bigger head-scratcher though may be the decision to sell ETH when it is the only coin the company holds that can generate returns through staking. BIT Mining Limited From a liability standpoint, BIT Mining Limited cites $36 million in current liabilities and $39 million in total liabilities when adding lease obligations. Quarter over quarter shares outstanding grew a little over 4%. Risks There isn't much more information in the company's filings pertaining to liability details. We know BIT Mining Limited previously operated a lottery business before entering crypto mining in 2021. We also know the company has exactly one quarter of positive net income between 2016 and 2022: Data by YCharts This is not a company that has a history of generating positive earnings even when crypto was at all-time highs. Share dilution remains an ongoing concern. Summary BIT Mining Limited's mining pool and self-mining businesses are telling the tale. The broader trend for those segments is in decline. The opportunity in datacenters is interesting, but there will be quite a bit of competition in that space. Earlier in May, BIT Mining Limited announced a partnership with a company called Chain Reaction to producing BTC mining systems with a new ASIC chip that the companies describe as "groundbreaking." Though there were no specifics about production units and sales provided. Furthermore, the company's crypto treasury management decisions are odd from where I sit. While I've made it no secret that I think assets like Dogecoin don't have much a future, in my view the more egregious decision is selling the ETH on the balance sheet when the company could be generating rewards by staking it natively on-chain. It's difficult to understand why management would opt instead for holding meme coins rather than selling all DOGE production and staking Ethereum at virtually no cost. BTCM is still an avoid for me.

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