BitFuFu Earnings: A Bad Q3 And Larger Concerns

Summary BitFuFu is a Bitcoin mining company that generates revenue from both self-mining and selling customers cloud mining packages. Cloud mining is a problematic business when mining profitability is low because customers often lose money on their packages. While cloud mining customers surged year over year, Q3 was still a bad quarter based on operating income. Bitcoin ( BTC-USD ) has broken out of a 7-month consolidation pattern . There is excitement in the cryptocurrency space following the re-election of Donald Trump as President of the United States. With risk-on sentiment taking hold of both the equity and digital asset markets, Bitcoin-adjacent stocks have a strong setup from an investor-interest standpoint. I’ve covered Bitcoin mining stocks dozens of times in recent years. However, one that I have yet to publish an opinion on is BitFufu ( FUFU ). In this article, we’ll look at BitFuFu’s core business, recent earnings, and assess whether or not this is a name investors should take a flier on given the macro setup for Bitcoin’s price and crypto-related equities. BitFuFU Details BitFufu has two primary lines of business. The company derives revenue from self-hosted Bitcoin mining and, to a larger degree, cloud mining. The latter of which is a consumer product rather than raw mining. Through cloud mining, BitFuFu sells Bitcoin mining capacity to market participants who want rewards from Bitcoin mining without the cost of buying and maintaining mining assets directly. If this sounds familiar, it’s similar to how Bitdeer ( BTDR ) generates a portion of its revenue as well. Though, Bitdeer’s revenue from cloud hash is smaller than that of BitFuFu. There are other similarities between the companies: Ownership Details FUFU BTDR Shares Outstanding 162.90M 147.35M Float % 10.07% 30.74% Insider Shares 135.00M 80.47M Insider % 82.87% 54.61% Institutional Shares 776.15K 10.21M Institutional % 0.48% 6.93% Source: Seeking Alpha Like Bitdeer, BitFuFu is headquartered in Singapore and has a super small float relative to other mining companies in the public markets. This makes FUFU shares highly volatile during intraday trading given its large percentage of insider ownership. Data by YCharts Since going public in the US earlier this year, FUFU shares have lagged the broader mining industry to a significant degree as evidenced by the total return of the CoinShares Valkyrie Bitcoin Miners ETF ( WGMI ). With a market capitalization of $790 million and ten companies over the $1 billion threshold, FUFU is more of a second-to-third tier mining company based on market cap alone. That said, it controls quite a bit of EH/s capacity and ranks top 3 in trailing twelve-month revenue. Q3 Earnings For the quarter ended September, BitFuFu reported top-line revenue of $90.3 million. This was up 47.5% year over year but down 30.2% sequentially. Revenue from self-mining came in at $20.5 million – up 40.4% from last year but down nearly 60% from Q2. This clearly highlights the potential problem with the long-term sustainability of Bitcoin mining as a viable line of business. The saving grace for FUFU shareholders in Q3 was the $68.9 million in cloud mining revenue: $ in millions Q3-23 Q2-24 Q3-24 YoY QoQ Total Revenue $61.2 $129.4 $90.3 47.5% -30.2% Cloud Revenue $45.5 $77.0 $68.9 51.4% -10.5% Self-Mining Revenue $14.6 $51.1 $20.5 40.4% -59.9% Registered Cloud Users 259,929 395,056 455,764 75.3% 15.4% EH/s UM 13.9 24.7 26.2 88.5% 6.07% Cost of Revenue $61.2 $118.4 $89.4 46.1% -24.49% Source: BitFuFu, author’s calculations Cloud mining is the clear standout in this table as it accounted for 76% of BitFuFu’s total revenue in the quarter. Segment revenue grew 51.4% year over year and only pulled back 10.5% sequentially. Offsetting the reduction in block reward fees was the 15.4% sequential jump in registered cloud users from 395k last quarter to nearly 456k in Q3. In the company’s earnings announcement, BitFuFu noted that 63% of its cloud mining revenue came from repeat customers from the prior year period. This is interesting to me, and I’ll touch on it in the next section. Data by YCharts From a quarterly net income standpoint, Q3 was not the strongest showing for FUFU. The company lost $5 million in the quarter which amounted to 3 cents per share. After SG&A, R&D, and depreciation BitFuFu’s operating loss $5.6 million makes Q3-23 BitFuFu’s worst quarter in at least the last 2 and half years. Major Red Flag To shareholders, cloud mining may look great on paper. It’s an alternative way to de-risk hash power when mining profitability is low by monetizing it through a willing client base. But when diving deeper into the numbers, one can see it’s not actually a very good deal for the customers – which makes the recurring revenue from last year very surprising to me. Consider the revenue per BTC figures by segment below: Business Lines Q3-24 BTC Mined Rev Per BTC Cloud Revenue $68.9 957 $71,996 Self-Mining Revenue $20.5 340 $60,294 Source: BitFuFu, author’s calculations BitFuFu generated 340 BTC from its self-mining segment and 957 BTC from its cloud mining segment. Back-of-the-envelope math shows cloud revenue per Bitcoin was $72k versus just $60k per BTC for self-mining. So what’s the problem? Data by YCharts Bitcoin never sniffed $72k per coin during the quarter. That means there’s a fairly high degree of certainty that BitFuFu’s customers lost money on their cloud mining packages between July and September. Consider some of the customer reviews from Trust Pilot. Admittedly, just 31 reviews after servicing hundreds of millions of customers is a small sample. However, users on that website give BitFuFu a Trust Score of 2.3 out of 5. BitFuFu Review (Trustpilot) The picture above is a screen grab of the most recent BitFuFu review on the website. 55% of reviews have been 1-star and share common complaints about KYC issues and transparency regarding costs to the customer. While these could perhaps be isolated incidents, I suspect they’re more indicative of a larger problem with the cloud mining model altogether. Namely, if mining profitability is volatile for the miners themselves, then selling cloud mining packages to customers online likely isn’t all that different from selling scratch-off tickets. It’s not a bad business if you can keep selling hopes and dreams, but I suspect repeat business will be increasingly tougher to keep when customers realize they can just buy and hold BTC through an exchange with their cloud mining package fees instead. Closing Thoughts Compared with other Bitcoin mining stocks, FUFU doesn’t look all that bad on the surface. It’s a top three mining company by trailing twelve-month revenue, and it has control of over 26 EH/s. However, the relatively low market cap of the company is perhaps indicative of a fundamental problem with BitFuFu’s underlying business. Namely, that three quarters of total revenue comes from cloud-based mining; which is not necessarily a good product for consumers. There is an enormous amount of insider holdings. While this could perhaps be viewed as a good thing and aligned incentives with management, it also creates a low-float environment that makes the stock price volatile. I won’t call FUFU an outright sell because there is always a chance the share price could move higher with BTC. But there are a lot of ways to make Bitcoin-adjacent bets in the equity market. FUFU is not one that I’m personally going to recommend at this time.

Source: Seeking Alpha