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The corporate’s third-quarter revenue dropped almost 90% as plunging cryptocurrency costs squashed demand for its merchandise.
It’s named for the biblical promised land of milk and honey. However today Canaan Inc. (NASDAQ:CAN) is headed to fairly a unique place, marching straight right into a winter that’s shaping up as lengthy and harsh.
The corporate, one of many world’s largest bitcoin mining machine makers, said on Monday that its web revenue for the third quarter dropped almost 90% year-on-year to 61.1 million yuan ($8.6 million) because it bore the brunt of a deep droop in cryptocurrency markets that exhibits no indicators of easing.
Canaan’s income additionally declined by greater than 1 / 4 because the sharp drop in digital forex values hit miners, which in flip curtailed demand for computer systems used to mint new digital cash. To beef up gross sales, Canaan lower costs for its merchandise. However that undercuts its personal profitability, and may solely accomplish that a lot to spice up gross sales throughout the newest “crypto winter.”
Fortuitously for Canaan, some gross sales that it secured earlier than the crypto crash for supply within the July-September interval cushioned its third-quarter income from a fair worse drop. And regardless of the plunge in crypto costs, Canaan boosted income from its personal mining exercise, which it started this 12 months to complement its core machine-making enterprise by placing its unsold stock to work.
However then a lot of prices and costs ate into the corporate’s income in its newest reporting interval. One of many largest of these noticed Canaan write down some 220 million yuan of stock as demand for its merchandise cooled, erasing greater than 20% of its whole income. Its analysis and growth bills additionally elevated, primarily as a result of staffing prices. And eventually, Canaan was compelled to e book an impairment cost for its personal cryptocurrency holdings as their values fell.
The corporate is bracing for even harder instances forward, anticipating its fourth-quarter income to plunge 86% from a 12 months earlier as orders positioned earlier than the plunge in crypto costs are dwindling and the present downturn exhibits no indicators of ending.
The value of bitcoin, the digital forex that acts as a bellwether for the crypto trade, has been on a downward spiral because the spring, hit by surging inflation that has led buyers to flee dangerous property on the whole. Including to the strain are a rising variety of scandals involving crypto firms that thrived throughout the good instances however are actually having issue assembly their monetary obligations. Bitcoin roared to an all-time excessive of greater than $68,000 only a 12 months in the past however now trades beneath $17,000.
The most recent shock for crypto markets got here earlier this month after FTX (FTT-USD), one of many world’s largest crypto exchanges that when was valued at greater than $30 billion, collapsed, leaving its customers unable to withdraw their funds. Simply six months earlier, the crypto world suffered one other main shock when Luna, a so-called “steady coin” that was presupposed to be pegged to the U.S. greenback, misplaced almost all its worth in a single day.
FTX casualties
The continuing FTX saga is leaving a path of different casualties throughout the crypto universe. Within the U.S., crypto lending platform BlockFi is reportedly contemplating submitting for Chapter 11 chapter safety as a result of its important publicity to FTX. In Hong Kong, digital asset platform New Huo Expertise Holdings Ltd. (1611.HK) stated on Monday that it has about $18 million value of cryptocurrencies sitting with FTX.
The aftermath of FTX’s failure doesn’t finish with those that have used its providers or have direct monetary ties. The scandal, mixed with earlier unfavorable headlines about crypto on the whole, has left the trade dealing with a disaster of confidence. The disaster has put most firms within the trade’s huge meals chain in danger, together with miners that have been already grappling with excessive electrical energy payments and should now take care of considerably decrease values for the property they harvest.
Core Scientific (CORZ), one of many largest listed mining firms within the U.S., stated final month it may go bankrupt and wouldn’t be capable of repay debt that got here due in October and early this month. Additionally final month, miner Argo Blockchain plc (OTCQX:ARBKF, ARBK), (ARBKF.L) warned that it might be compelled to stop operations after failing to lift recent capital from a strategic investor.
It’s most likely secure to say that numerous different miners are struggling to remain afloat, with extra bankruptcies seemingly as their income shrink or disappear and the enterprise capital buyers who as soon as embraced the group refuse to provide new funding. These miners’ troubles immediately trickle all the way down to machine makers like Canaan. In September, Bitmain Applied sciences, a significant rival to Canaan, lowered the value of a key product to 30% lower than market costs that already have been down 70% because the begin of the 12 months, in accordance with a CoinDesk report.
Canaan and its rivals will most likely should proceed aggressively slicing costs, on the expense of margins, in determined makes an attempt to keep away from letting their stock pile up. However slicing costs for his or her machines received’t be sufficient to spice up demand within the present depressed market.
In its earnings launch, Canaan stated it’s anticipating issues to maintain getting worse for an additional two quarters. Which means the corporate might want to transfer into cash-conservation mode to outlive the tough instances, even because it nonetheless must spend on new product growth.
“At this level, dealing with a extreme winter within the trade, profitability is not our first precedence,” CEO Zhang Nangeng stated on the corporate’s newest earnings name. “We are going to get by this tough time and put together for the longer term by shifting our focus to the steadiness of money flows, decreasing pointless bills, and persevering with to put money into the analysis and the event of latest merchandise.”
Canaan’s stability sheet appears to be like comparatively wholesome and clear – for now. Its money holdings decreased a bit by the top of September from a 12 months earlier, however its short-term liabilities additionally greater than halved, with no interest-bearing debt.
Canaan shares rallied about 17% within the two days after it launched its third-quarter outcomes. However that’s most likely as a result of bitcoin costs climbed in that interval, reasonably than as a result of any investor pleasure about its enterprise efficiency. The inventory has misplaced about half of its worth from a peak in March earlier than the crypto disaster started.
Canaan’s inventory is at the moment buying and selling at a couple of third of its IPO worth, fetching a price-to-earnings (P/E) ratio of simply 1.4, far decrease than 11.6 for a lot smaller rival Ebang Worldwide Holdings Inc. (EBON). However then once more, the much more troubled Ebang has but to file any monetary outcomes for this 12 months, and thus its ratio relies on its 2021 revenue throughout a lot headier instances for crypto firms. Thus, its ratio will inevitably come down when it information any up to date info for this 12 months.
Disclosure: None.
