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Bitcoin Mining Manufacturer Canaan Sees Stock Hit Record Low as their Equipments Becomes Less Profitable

Canaan, one of the largest Bitcoin mining hardware manufacturers in the world, has had quite a busy and eventful year, continuing to compete for a larger part of the mining market against Bitmain, another Chinese manufacturing giant.

Being one of the few companies in the crypto and blockchain industries that have gone public, every minor bump Canaan runs into is almost immediately felt in its stocks. Earlier in April, analysis from blockchain project risk rating agency Standard Consensus High showed that Canaan’s stock was undervalued, putting its intrinsic value at just above $2.35 at the time.

However, while the analysis did consider the short-lived but immediate impact Bitcoin’s block reward halving will have on the mining market, it doesn’t seem to have accounted for the massive losses and generally poor performance the company has shown both in 2019 and in the first two quarters of the year.

The latest unaudited financial statements from the Nasdaq-listed bitcoin miner mega-seller revealed that it lost $148.6 million in 2019. Its total net revenue for 2019 is reported at $204.3 million – approximately half of the $384 million it earned in 2018.

This is the direct consequence of a drastic reduction in the demand for Canaan’s miners. Aries Wang, the co-founder of cryptocurrency exchange Bibox, said that the demand for hardware began dropping several months before Bitcoin’s halving in May, as Chinese miners began upgrading their equipment and phasing out old machines. Many had already completed the update on infrastructure such as mining sites and miners before the end of February.

Another factor that limited the company’s revenue in the first two quarters was the COVID-19 outbreak, which prevented it from delivering machines to its customers. And while there was slight relief from the company when the outbreak was put under control, an event that pushed its stock price up, Bitcoin’s May 13th halving came along and put a stop to the very short-lived upward momentum.

On May 13th, Canaan’s stock reached $5.99, but has since tumbled down to its lowest level yet, closing at $1.98 on June 14th. This is a major hit for the company which priced its stock at $9 per share during its initial public offering (IPO) last November. 

Canaan’s price started dwindling-down after a report was published on stock markets insight website SeekingAlpha by White Diamond Research on May 14th. The report called the company’s mining equipment to be of second grade and noted that Caanan’s new-generation miners were less profitable than Bitmain’s old-generation miners. It also concluded that Caanan is grossly overvalued and they estimated the market-cap of the company to be in the $100-$200 million range instead of then market value of nearly $800 million.

Caanan's Share Price

Caanan’s Share Price was at $5.97 on May 14

Whether or not the company will be able to stretch its $74 million cash balance throughout the next few years will depend on the performance of its products. However, as of now, Canaan’s products are widely considered to be inferior to those produced and sold by its main competitor, Bitmain. 

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            Table showing the live income estimation of Canaan’s AvalonMiners. (Source: ASIC Miner Value)

But, with every model of Canaan’s available AvalonMiners currently being unprofitable, some losing as much as $4.69 per day, it seems that the company will be up for a tough few months trying to set both its finances and reputation straight. 

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