"Cango's Fortunes Turn Around Following Move Into Bitcoin Mining"

Ladies and gentlemen, buckle up! We are in for a wild ride as we dive into Cango Inc.'s (CANG) Q4 2024 earnings call. This company has just pulled off a monumental shift that has sent its revenue soaring and its stock on a rocket ship to the moon! Let's break it down, step by step, and see why you need to be all over this stock right now!

First things first, let's talk about the elephant in the room: Bitcoin mining. Cango Inc. has made a massive bet on this sector, and it's paying off BIG TIME! In the fourth quarter of 2024, the company reported total revenues of RMB668.0 million (US$91.5 million), a jaw-dropping 400% year-over-year surge. The driving force behind this explosion? You guessed it—Bitcoin mining! This new venture generated a staggering RMB653.0 million (US$89.5 million) in just two months. That's right, folks—two months! This is not a drill; this is a game-changer!

Now, let's talk about the numbers. Cango mined a total of 933.8 Bitcoins during the quarter, with an average cost to mine Bitcoin, excluding depreciation of mining machines, of US$67,769.9 per Bitcoin. This is a no-brainer! The company's net income for the quarter was RMB55.9 million (US$7.7 million), a massive turnaround from the net loss of RMB103.8 million in the same period of 2023. This is what we call a "BOOM!" moment in the market!

But wait, there's more! Cango's strategic acquisition of on-rack Bitcoin mining machines with an aggregate hashrate of 50 exahashes (EH) for a total purchase price of US$400 million has positioned the company as the third-largest Bitcoin miner globally. By November 15, 2024, they had taken delivery of 32 EH of mining power. This is not just a play; this is a full-blown transformation!



Now, let's talk about the risks. Yes, there are risks. The volatility of Bitcoin prices, the high capital expenditure, and the environmental impact of mining are all factors to consider. But let me tell you something—this is the price of innovation! Cango is not just dipping its toes into the Bitcoin mining sector; it's diving headfirst into the future of digital currency. And the future is looking bright, folks!

The company's credit risk exposure is also a concern, with an outstanding loan balance of RMB1.1 billion (US$148.2 million) where the company bears credit risks that have not been provided with full bad debt allowance or full risk assurance liabilities. But let's not forget that Cango has a solid foundation in the cryptocurrencies sector and is strategically positioning itself for further expansion across the digital economy value chain. This is not just about Bitcoin mining; this is about creating sustainable value for all stakeholders!

So, what's the bottom line? Cango Inc. is on fire! The company's strategic shift to Bitcoin mining has 1. How does Cango's strategic pivot to Bitcoin mining compare to other companies that have successfully transitioned from traditional industries to the cryptocurrency sector, and what lessons can be drawn from these comparisons?

Cango's strategic pivot to Bitcoin mining can be compared to other companies that have successfully transitioned from traditional industries to the cryptocurrency sector, such as Marathon Digital Holdings and Riot Blockchain. These companies have demonstrated that a well-executed transition can lead to significant financial gains and market leadership.

Marathon Digital Holdings, for example, transitioned from a traditional oil and gas company to a leading Bitcoin mining company. Similarly, Riot Blockchain shifted from biotechnology to cryptocurrency mining. Both companies have seen substantial revenue growth and market capitalization increases, much like Cango's 400% year-over-year revenue surge in Q4 2024, driven by its Bitcoin mining business.

Cango's acquisition of Onrack Bitcoin mining machines with an aggregate hash rate of 50 EH for $400 million USD, and the rapid deployment of 32 EH of mining power by November 15, 2024, positions Cango as the third-largest Bitcoin miner globally. This aggressive expansion strategy mirrors the rapid scaling seen in other successful transitions, such as Marathon Digital Holdings' aggressive acquisition of mining equipment and facilities.

The lessons drawn from these comparisons include the importance of timely and decisive action, substantial capital investment, and a focus on operational efficiency. Cango's strategic direction, focusing on "Energy + Computing Power" as the core of its future development, aligns with the industry's need for sustainable and efficient mining operations. This focus is validated by Cango's robust operational performance, with mining machines maintaining an average operating hash rate of 93% and 95% in November and December 2024, respectively.

Additionally, Cango's strong liquidity position, with cash, cash equivalents, and short-term investments amounting to approximately RMB2.52 billion, supports its continued expansion in the capital-intensive mining sector. This financial stability is crucial for sustaining growth and mitigating risks, as seen in the successful transitions of other companies in the sector.

In summary, Cango's strategic pivot to Bitcoin mining, characterized by rapid deployment, substantial capital investment, and a focus on operational efficiency, aligns with the successful transitions of other companies in the cryptocurrency sector. These comparisons highlight the importance of decisive action, financial stability, and strategic focus in achieving market leadership and financial success.

2. What are the potential risks and challenges Cango may face in maintaining its position as a leading Bitcoin miner, given the volatility of the cryptocurrency market and the high capital expenditure required for mining operations?

Cango Inc. faces several potential risks and challenges in maintaining its position as a leading Bitcoin miner. One of the primary risks is the volatility of Bitcoin prices. As noted by Mr. Zhang Yongyi, CFO of Cango, "We view Bitcoin's price fluctuations as short-term and are optimistic about its long-term value. We maintain substantial capital reserves to manage potential volatility, confident in Bitcoin's positive impact on our performance." This volatility can significantly impact the company's financial performance, as the value of mined Bitcoins can fluctuate dramatically in short periods.

Another significant challenge is the high capital expenditure required for mining operations. Cango's acquisition of Onrack Bitcoin mining machines with an aggregate hash rate of 50 EH for a total purchase price of $400 million USD demonstrates the substantial capital commitment required. This high capital expenditure can strain the company's financial resources and increase its debt levels, potentially affecting its liquidity and financial stability. As Mr. Zhang Yongyi mentioned, "We assessed our cash flow before the acquisition, with USD256 million settled in cash and the rest through stock. We maintain sufficient cash and liquidity to support operations and are exploring ways to enhance capital efficiency."

Additionally, the cryptocurrency mining sector is subject to regulatory risks and market fluctuations. Cango's entry into the Bitcoin mining industry was driven by the approval of Bitcoin ETF in the United States at the beginning of 2024, which marked a significant turning point for the cryptocurrency industry. However, regulatory changes or market fluctuations can impact the company's operations and financial performance. As Mr. Lin Jiayuan, CEO of Cango, stated, "The crypto industry has high entry barriers, including substantial capital investment and operational readiness."

Furthermore, the environmental impact of mining operations is a growing concern. The high energy consumption required for Bitcoin mining can have significant environmental implications, and regulatory bodies may impose stricter environmental regulations in the future. Cango's average energy consumption is 21.6 joule per TH, and the company plans to negotiate lower electricity costs and explore cost-effective energy solutions, including projects in the Middle East and Australia. However, the environmental impact of mining operations remains a potential risk and challenge for the company.

In summary, Cango Inc. faces several potential risks and challenges in maintaining its position as a leading Bitcoin miner, including the volatility of Bitcoin prices, high capital expenditure, regulatory risks, market fluctuations, and environmental concerns. The company must navigate these challenges carefully to maintain its competitive edge and financial stability in the cryptocurrency mining sector.

3. How does Cango's current financial performance and liquidity position support its aggressive expansion plans in the Bitcoin mining sector, and what strategies is the company employing to optimize its cost structure and energy consumption?

Cango's current financial performance and liquidity position strongly support its aggressive expansion plans in the Bitcoin mining sector. As of December 31, 2024, Cango maintained RMB2.5 billion in cash and short-term investments, providing ample liquidity to support the company’s sustainable growth and strategic initiatives. This substantial cash reserve is crucial for the capital-intensive nature of the Bitcoin mining business, which requires significant upfront investments in mining machines and infrastructure.

The company's financial turnaround is evident in its Q4 2024 results, where total revenues surged to RMB668.0 million (US$91.5 million), driven primarily by the Bitcoin mining business, which generated RMB653.0 million (US$89.5 million). This revenue surge represents a year-on-year increase of over 400%, highlighting the immediate impact of the