What does a public traded company with crypto-business segments look like?

Japan GMO Internet’s virtual currency business advanced and profitability improved in Q1 2019.

 On May 9, GMO Internet, a large Japanese tech conglomerate developing internet infrastructure, online advertising and media, internet finance, and cryptocurrency businesses, reported December 2019 Q1 results.

Currently, in its virtual currency business, GMO’s work consists of mining Bitcoin and Bitcoin Cash, the GMO coin, and its stable coin “GYEN” to dealing with settlement business.

We are using this company’s disclosures as a case study for cryptocurrency businesses with various business segments.

For the overall business, in terms of profits/losses this quarter, the infrastructure and virtual currency businesses have compensated for the decline in financial and advertising media businesses.

2019 Q1 Earnings Summary

Operating income change in the first quarter of 2019 (compared to the previous year)

  In its quarterly results report, GMO announced a massive impairment of more than 35 billion yen in the previous quarter (December 2018). Though sales increased 103.7% this year to 1.29 billion yen, there was still an operating loss of 2.2 billion yen.

Compared with the same period last year, however, the loss was reduced by ¥ 500 million. This can be attributed to improvements in the restructuring of the mining business, although there was a decline in revenue because of transaction volume decreased.

2019 First Quarter Segment Status

Virtual Currency Business: Restructuring after Impairment and Profitable Over Time

Looking at the virtual currency mining business in terms of quarterly performance trends, there is a significant increase in operating loss (in the December 2018 fiscal year). In addition, there is a decline in sales this quarter.

The company’s mining facilities run in Northern Europe, and it saw its transaction volume also decreased due to reduction in existing bases, as the company previously announced on December 25, 2018. Despite this, impairment has greatly reduced the fixed depreciation cost, and it has become possible to operate at a much cheaper electricity cost than before (about 60% decrease), by starting a new data center.

Quarterly Performance Trends in Revenue/Losses in Virtual Currency

Quarterly Performance in Revenue/Losses Virtual Currency Mining

Hashrate and Mining Volume

 The transition to a new data center will require a full year. While temporary efficiency deterioration is expected, the hash rate will still increase quarterly, from the current 496 PH (Petahash) to 1200 PH at the end of the fiscal year.

 In addition, the company will improve profitability by purchasing machines that have been depreciated due to impairment. Assuming that the global hash rate remains the same, it is expected that profitability will improve in the future, especially with the recent upward trend of Bitcoin.

Future Prospects in Virtual Currency Mining

 In other areas, the business environment has been improving, despite the decline in earnings due to a decline in cryptocurrency transaction volume and prices. But there is a rise in transaction prices and going forward, the group will seek to expand its domestic market share by leveraging their knowledge in the FX business. Furthermore, the issuing of stablecoins will increase the profitability of their stablecoin businesses.

Quarterly Performance in Revenue/Losses of Virtual Currency Exchange

Short-term, Medium and Long-term Outlook Strategies in Virtual Currency

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