BitFuFu makes big gains as cryptocurrency booms

Revenue for the provider of digital mining services jumped 47.5% in the third quarter on strong gains for its core cloud-mining services, as well as its self-mining business

Key Takeaways:

• BitFuFu’s third-quarter revenue jumped 47.5% to $90.3 million, led by 51.4% growth for its cloud-mining services and 40% growth for its self-mining operation
• The digital mining services provider is looking to lower costs by transitioning from its asset-light model to one that manages a diverse portfolio of bitcoin mining infrastructure

By Warren Yang

The resurrection of the cryptocurrency market this year has injected new vitality into the many players tied to the market. Among those, BitFuFu Inc. (FUFU.US) demonstrated just how much the business has to gain in such times, posting quarterly results last week that could excite nearly any investor, even those on the conservative side.

The company’s third-quarter revenue jumped 47.5% year-on-year to $90.3 million, according to its third-quarter financials, contained in its third quarterly report since BitFuFu went public earlier this year. Revenue from its cloud-mining services grew by an even stronger 51.4% to $68.9 million, accounting for more than three-quarters of its total revenue. Its smaller bitcoin self-mining operation contributed $20.5 million, up 40% year-on-year.

H.C. Wainwright analyst Kevin Dede initiated coverage of BitFuFu with a “buy” rating and a target price of $7, nearly 50% higher than the stock’s current value.

BitFufu’s business is thriving on the back of a major surge in cryptocurrency prices following a yearlong downturn. The value of bitcoin, considered an industry benchmark, started to rise again in late 2022 and has surged this year to hit an all-time high last week.

The fortunes of companies like BitFuFu are often tied to cryptocurrency prices, which can boost demand for related services when prices go up and vice versa when they come down. In addition to those usual market movements, BitFuFu and its peers have also had to deal with the fourth “halving event” for bitcoin in April. Following that event, the amount of new bitcoin being generated by the currency’s algorithm was cut by half from previous levels.

The resulting decrease in supply after the halving event has helped to drive up bitcoin prices to their current highs. But it’s less ideal for miners, who now get only half as much bitcoin as they did for the same amount of effort prior to the halving event. BitFuFu wasn’t immune to that phenomenon. Its self-mining bitcoin production decreased by more than a third during the latest quarter from the same period a year earlier, although some temporary downtime to migrate its mining machines from high-cost facilities to more cost-efficient ones played a role as well.

BitFuFu wants to show that it can not only survive but even thrive when cryptocurrency isn’t rallying – a prudent goal but one that’s also difficult to attain for any company whose main business relies on cyclical financial markets.

Customers flock to cloud-mining

Growth for BitFuFu’s core cloud mining business remained strong, providing the big lift to its topline revenue during the quarter. Products from that business allow customers to mine digital assets remotely using the company’s cloud-based platform, saving them money by eliminating the need to purchase their own expensive mining equipment. Such services may be even more attractive after the bitcoin halving event, as miners who previously owned their own machines look to cut initiative costs.

The number of registered users of BitFuFu’s cloud-mining services jumped 75.3% year-on-year to 455,764 by the end of September, with new customers acquired over the last 12 months accounting for about 37% of revenue from that business segment.

Also importantly, many of BitFuFu’s existing customers for its cloud-mining services seem to be quite happy with them. Reflecting that, the company’s cloud-mining services showed a 96% revenue retention rate in the latest quarter compared with the revenue generated from the same customer group in the year-ago period, showing a high degree of customer “stickiness.”

For BitFuFu’s self-mining operation, the jump in cryptocurrency prices more than offset the reduction in the company’s own Bitcoin production, reflected in the fact that its revenue from the business grew substantially even after the halving event. Also, by shifting its mining machines to lower-cost facilities, the company has improved the profitability of its mining business.

BitFuFu expanded its hosting capacity by 64% in the third quarter from a year earlier, while also cutting costs charged by facility operators.

The company’s net loss increased to $5 million in the latest quarter from $2.7 million a year earlier, largely due to the inclusion of costs for share-based compensation this year. But its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) on a non-GAAP basis, which excludes many non-operational factors, actually increased almost 50% to $5.8 million.

Positive adjusted EBITDA essentially reflects BitFuFu’s ability to generate cash from operations, meaning the company can fund its operations on its own without the need for outside financing.

“Despite the halving event, BitFuFu had another successful quarter generating positive adjusted EBITDA,” CEO Leo Lu said in the company’s earnings release. “In fact, I am proud to say that the third quarter of 2024 is the eleventh consecutive quarter BitFuFu has generated positive EBITDA. This consistency demonstrates the profitability and resilience of our business model, regardless of whether the price of bitcoin is in a bear or bull market.”

Shift from asset-light model

BitFuFu is looking to acquire and own its mining infrastructure to improve its efficiency.

”We’re exploring opportunities in other regions where favorable energy rates can further reduce our costs and enhance long-term operational stability,” Lu said.

In a major strategic shift, the company entered into a definitive agreement to acquire a majority stake in an 80-megawatt bitcoin mining facility in Ethiopia last month. The company also has a potential acquisition pipeline of more than 100 megawatts in total, which includes both traditional grid and off-grid options. Such diversification looks prudent due to the constantly evolving state of cryptocurrency regulation in markets throughout the world.

Additionally, the company agreed to a 10-year lease for a U.S. site in the third quarter, with an option to acquire 70% of the facility by the end of this year, Lu said on the company’s conference call to discuss the results.

Unlike established large-scale mining enterprises and traditional financial technology companies, BitFuFu’s youth makes it more dynamic and agile, able to adjust to a rapidly evolving market more quickly. The company has continuously refined its asset model and product structure to adapt to those constant changes and make itself more resilient, as well as to pursue new opportunities within the digital currency and cloud computing power industries.

BitFuFu shares edged up slightly the day of its latest earnings announcement and the stock trades at a price-to-sales (P/S) ratio of 1.73. While such valuations aren’t exactly what you’d expect from such high-growth companies, they do mean the stock could have ample room for gains. That could be especially true if BitFuFu can show its business model can thrive not only during upswings in cryptocurrency markets, but also during softer economic environments.

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