The company, whose main business was previously auto trading, said its revenue skyrocketed in the fourth quarter after its move into bitcoin mining

Key Takeaways:

• Cango's revenue rose more than fivefold to 668 million yuan in last year's fourth quarter, following its launch of a bitcoin mining operation last November
• The company will add 18 EH of new capacity by the end of this quarter, bringing its total to 50 EH, making it the world's second-largest bitcoin miner

There's nothing like a new business model to put some new spring into your step.

After watching its revenue dwindle for a year and a half, Cango Inc. (CANG.US) came roaring back in the final quarter of last year, following a major shift into the cryptocurrency mining business in November. This was no subtle shift either. The company's revenue skyrocketed by more than a factor of five to 668 million yuan ($92 million) for the quarter from 130.2 million yuan a year earlier.

The latest figure not only marked Cango's first year-on-year revenue growth since the second quarter of 2023, but was also its highest total since that quarter. And in one final impressive feat, the figure was light years ahead of the company's forecast just three months earlier for fourth-quarter revenue of just 15 million yuan to 17.5 million yuan – quite possibly the biggest revenue "beat" of all time for any company.

The crypto shift looks set to continue for Cango, which announced a major expansion to its mining capacity in the current quarter and the potential for more in the second half of the year. The company is also aware of the risks of tying its fate to such a volatile sector, and broadly discussed some of the steps it is taking to control such risk. As a newcomer to the industry, Cango is also still on a sharp learning curve, which is reflected in its relatively high costs for each bitcoin it mines compared with some older peers. Those higher costs also owe to Cango's asset-light business model that differs from many of its peers by requiring much lower up-front investment, but with higher operating costs.

The sudden revenue jolt owes completely to Cango's move into cryptocurrency in November. Before that, the company was engaged in the auto business, first as a car loan financier, and more recently as a provider of domestic and international car trading services. That was fine when China's car industry was booming for most of the 21^st century, as it zipped past the U.S. to become the world's largest market.

But the market has become stuck in slow-growth mode over the last few years as China's economy slows, resulting in huge overcapacity built up over the boom years. That's led to endless price wars with most companies losing money, leading Cango to scale down its car business to avoid falling into the same trap.

Reaction to Cango's latest report after its release last Thursday was relatively muted, with its shares rising 2.1% the next day. The stock has doubled over the last six months since Cango first announced the move into crypto mining in early November. But notably, the shares are also down 28% so far this year, tracking an 8% drop for bitcoin, showing the company's future will inevitably follow bitcoin prices to some extent.

Reflecting its newness to the industry, Cango's shares currently trade at a relatively low forward price-to-earnings (P/E) ratio of between 4 and 8, based on our calculations using its likely profit for this year derived from its fourth-quarter performance. That's well behind the ratio of 40 for industry leader Mara (MARA.US). Better comparisons might be Cipher (CIFR.US) and Bitfufu (FUFU.US), which trade higher than Cango with P/E ratios of 12, implying Cango's stock could still have some upside as more investors discover the company.

High mining costs

Cango first announced its plans to purchase $400 million worth of mining machines in November, and completed the first tranche of that the same month with its acquisition of $250 million worth. The company currently operates more than 138,000 machines in the U.S., East Africa, Oman, Paraguay and Canada, with the U.S. hosting about 40% of its capacity.

That operation began mining in mid-November, minting 363.9 bitcoins that month and another 569.9 in December. It minted another 538.2 bitcoins in January and 472.2 in February. Over that period, its production fell from 18.4 bitcoins mined each day in December to 16.9 in February, reflecting the growing competition for new bitcoins that are created at a constant rate by an algorithm no matter how many people are engaged in mining.

The company's output should soon get a one-time boost, as Cango disclosed it expects to complete its acquisition of the remaining $150 million worth of mining machines by the end of this month. CEO Lin Jiayuan said Cango will focus on installing and operating that capacity in the first half of this year, and also improving its efficiency.

The company said its cost for mining each bitcoin, excluding depreciation of its mining machines, was $67,769.90 in the fourth quarter. While that's below the current industry average of about $86,000, according to the website MacroMicro, it's still quite a bit higher than Mara's $51,035 in its latest financial report. Cango noted that the new installations will raise its capacity from the current 32 exahashes (EH) to 50 EH, making it the world's second-biggest listed miner behind only Mara.

An important reason for its higher cost-per-bitcoin mined is Cango's capital-light business model, whereby it installs its machines at existing facilities built by others. By comparison, Mara and many others build their own mining facilities, requiring far more capital but significantly lowering electricity costs that are one of their biggest expenses. Cango also has lower depreciation costs through its use of second-hand mining machines, unlike others like Mara, which use new machines.

"In the second half (of 2025), we will pursue a hash rate expansion strategy, actively seeking valuable assets to increase our overall capacity," Lin said on Cango's investor call, suggesting that even more expansion could be coming.

In terms of operating costs, the rapid bitcoin business buildup was most evident in Cango's general and administrative expenses, which nearly tripled to 127.9 million yuan in the fourth quarter from 45.6 million yuan a year earlier. But the huge jump in revenue was more than enough to offset that, with the company reporting a 55.9 million yuan profit, reversing a 103.8 million yuan loss a year earlier.

Cango also commented on its older auto businesses, including its progress in winding down its original auto financing business. It also disclosed that its newest international business expected to make its first sales of about $15 million this year through the export 1,500 cars.

The company also discussed some of the steps it is taking to control risk related to price fluctuations, including its establishment of a "comprehensive market monitoring protocol and a robust policy analysis mechanism." On the regulatory front, one of the company's most immediate risks could be its base in China, where cryptocurrency is officially banned, even though all Cango's mining operations are outside the country. In that regard, it could ultimately follow many of its formerly Chinese peers by moving its headquarters overseas, with Singapore as one of the most popular destinations for such relocations.