This post originally appeared in Money Stuff.
Maybe the most interesting thing about the initial public offering of Bitmain Technologies is its accounting. (Here is the preliminary offering document, here are articles about it from Bloomberg News and the Wall Street Journal, and here is an analysis from my Bloomberg Opinion colleague Tim Culpan.) Bitmain is a company that mostly sells cryptocurrency mining hardware; it also does some crypto mining itself. It seems to be quite profitable: In the first half of 2018, it had net income of $743 million, and profit from operations of $1.07 billion, on about $2.8 billion of revenue. (It seems to have had a loss in the second quarter though.) Its business seems fairly straightforward: Most of its revenue comes from selling mining hardware, most of its costs come from building the mining hardware, and the revenue greatly exceeds the costs.
But while Bitmain has over a billion dollars of operating profit, its cash flow from operations is very negative: It used $622 million of net cash in operating activities in the first half. That is unusual! But the explanation is simple: