GMO Internet, a sprawling Japanese internet conglomerate, often flies under the radar of Western analysts. Known primarily for its domain registration and hosting services, GMO quietly houses a potential cryptocurrency powerhouse waiting to explode. While most eyes are focused on GMO's core internet infrastructure business, a closer look at the provided financial data reveals intriguing hints at the company's underappreciated crypto ambitions.

What's particularly striking is the massive drop in depreciation and amortization in the 2022 financial data. In the 2022-Q2 report, depreciation and amortization was a positive $1.696 billion USD. Just three months later, it plummeted to -$1.176 billion USD, a swing of nearly $2.872 billion USD. This dramatic shift suggests a substantial write-down, potentially related to the crypto crash that dominated headlines in 2022.

"Why is this significant? It signifies GMO's bold commitment to cryptocurrency, a commitment that extends beyond mere trading. The scale of the write-down implies a significant investment in crypto mining infrastructure, an investment likely impacted by the tumbling value of cryptocurrencies."

This hypothesis is further strengthened by the noticeable increase in "Inventory" on GMO's balance sheet. From being non-existent in previous years, inventory suddenly jumped to $63.157 billion USD in 2021 and remained at $87.14 billion USD in 2022. While GMO's financial reporting doesn't explicitly detail the nature of this inventory, it's reasonable to speculate that a portion, if not a majority, represents mining equipment. This equipment, purchased when crypto prices were soaring, now sits on their balance sheet, likely contributing to the depreciation write-down.

GMO's crypto mining operation, while obscured within its consolidated financials, is likely substantial. This suggests that the company is positioning itself as a major player in the crypto space, perhaps even aiming to become a dominant force in the mining landscape.

However, the write-down also reveals a crucial vulnerability. GMO's aggressive crypto strategy is highly exposed to the volatility of the cryptocurrency market. The company's earnings in 2022 took a significant hit, swinging from a net income of $17.527 billion USD in 2021 to just $1.32 billion USD in 2022. This drastic reduction is likely influenced by the write-down on mining equipment, highlighting the risks associated with such a capital-intensive crypto strategy.

Net Income Fluctuation

Source: GMO Internet Financial Reports

Despite the setback, GMO Internet's commitment to cryptocurrency remains unwavering. The company's founder and CEO, Masatoshi Kumagai, is known for his bold and contrarian investment style. His vision for a decentralized internet, fueled by cryptocurrencies, is well documented. It's conceivable that Kumagai sees the crypto downturn as a buying opportunity, a chance to double down and solidify GMO's position while others retreat.

The next few quarters will be telling for GMO Internet. Will the company weather the crypto storm and emerge as a dominant player, or will its ambitious bet backfire? One thing is certain: while GMO might appear as a humble internet service provider on the surface, it harbors a hidden crypto giant, its future intertwined with the unpredictable tides of the cryptocurrency market.

"Fun Fact: GMO Internet also operates a diverse range of businesses, including online securities trading, FX trading, and even online gaming! They were also one of the first companies to offer internet services in Japan, paving the way for the country's digital transformation."