Bitcoin's Wild Ride: A Deep Dive into Canaan's Q3 Earnings and Future Outlook

Bitcoin's Wild Ride: A Deep Dive into Canaan's Q3 Earnings and Future OutlookBitcoin's recent price surge to record highs has captured widespread market attention, once again thrusting the Bitcoin industry chain into the spotlight. How are mining equipment manufacturers, who have been deeply involved in this field for years, currently performing? This article will use Canaan Inc

Bitcoin's Wild Ride: A Deep Dive into Canaan's Q3 Earnings and Future Outlook

Bitcoin's recent price surge to record highs has captured widespread market attention, once again thrusting the Bitcoin industry chain into the spotlight. How are mining equipment manufacturers, who have been deeply involved in this field for years, currently performing? This article will use Canaan Inc. as a case study to thoroughly analyze the opportunities and challenges facing Bitcoin mining equipment manufacturers.

Canaan's Q3 Earnings: Revenue Growth, but Still in the Red

On November 21st, Canaan Inc., often dubbed the "first blockchain stock," released its Q3 2024 financial report. The report shows total revenue of $73.6 million, a year-on-year increase of 120.9% and a quarter-on-quarter increase of 2.3%. However, despite this significant revenue growth, Canaan still reported an operating loss of $56.84 million and a net loss of $75.58 million. This result, against the backdrop of Bitcoin's continuous price increases, has raised many questions about the profitability model and future prospects of mining equipment manufacturers.

Single Revenue Stream: Heavy Reliance on Mining Machine Sales

Canaan's Q3 total revenue of $73.6 million was primarily composed of product revenue ($64.6 million), mining revenue ($9 million), and other income ($0.065 million). This clearly shows that product revenue, i.e., mining machine sales, remains the core revenue source for Canaan, accounting for 88% of the total. Although the company has been actively exploring diversification in recent years, including increasing its self-operated mining efforts, its dependence on mining machine sales remains remarkably high. In fact, Canaan, founded in 2013, initially focused on Bitcoin mining machine R&D and sales, a business that once contributed over 99% of its revenue. Despite years of promoting its AI transformation and attempts to expand self-operated mining, improvements in its revenue structure have been limited, and it remains heavily reliant on mining machine sales.

The growth in product revenue was mainly driven by the efficient delivery of the AvalonMiner A14 series and the sustained market demand for computing power. Q3 product revenue reached $64.6 million, a 4.5% quarter-on-quarter increase and a 116% year-on-year increase. Regarding mining revenue, while year-on-year growth was also significant (from $3.3 million in Q3 2023 to $9 million), it saw a slight quarter-on-quarter decrease (from $9.3 million in Q2), indicating that the stability of its self-operated mining business still needs improvement.

Fragile Profitability: Bitcoin Price Volatility is Key

Despite Canaan's significant year-on-year revenue growth in Q3, its loss situation remains largely unchanged. The operating loss of $56.84 million and the net loss of $75.58 million, while narrower than in Q3 2023, remain a cause for concern.

Yu Jianing, Co-chair of the Blockchain Special Committee of the China Communications Industry Association and Honorary Chairman of the Hong Kong Blockchain Association, believes that Canaan's Q3 report demonstrates its dual-pronged approach to mining machine manufacturing and mining operations, with a 121% year-on-year revenue growth exceeding market expectations. The company has made some progress in reducing costs and improving revenue generation. However, the persistent operating loss reflects that its profit model is not yet fully stable, and its current profitability is largely dependent on Bitcoin price increases, making its business performance highly cyclical.

Canaan's single core revenue source allows it to benefit rapidly from Bitcoin price increases but leaves it vulnerable to significant revenue pressure during price declines. This fragility will be even more pronounced after the 2024 Bitcoin halving. The halving will reduce miner rewards from 6.25 Bitcoin to 3.125 Bitcoin, further squeezing miners' profit margins and potentially leading to decreased demand for mining machines, posing a long-term challenge to Canaan's business.

Lackluster Stock Performance: Investor Concerns about Future Growth Potential

Besides its financial performance, Canaan's stock price is also cause for concern. As of 7 PM on November 21st, Canaan's stock price was $1.67. While it has recently rebounded somewhat due to the rise in Bitcoin's price, it remains significantly below its historical high. In Q3, the company's stock price even fell to $0.72, a record low.

Canaan's low stock price reflects investors' comprehensive consideration of the inherent risks within the Bitcoin mining machine industry. Yu Jianing points out that mining, as a "capital-intensive" industry, requires substantial R&D and production investments, but profitability is constrained by factors such as Bitcoin price volatility, global computing power competition, and electricity costs. Even if revenue improves due to rising Bitcoin prices, the demand for mining equipment is significantly cyclical. After the halving, miners' profit margins will narrow, potentially reducing their willingness to invest in new mining machines and impacting the long-term revenue expectations of mining machine manufacturers.

Furthermore, investors are worried about Canaan's future growth potential. While rising Bitcoin prices may temporarily boost mining machine demand, investors are more focused on whether the company can maintain stable revenue sources during industry downturns, and on its long-term strategy in technological innovation and market expansion. Especially after the Bitcoin halving, the mining industry will demand equipment with higher energy efficiency, and the R&D costs associated with this transition may erode Canaan's profit margins. Increasing global regulations on energy-intensive mining and the carbon emission pressure on the mining industry are also key concerns for investors. Macroeconomic conditions, changes in global capital market risk appetite, and investor expectations regarding the future regulatory framework for the cryptocurrency industry also impact Canaan's stock price.

Su Xiaorui, a senior researcher at Su Xi Zhi Yan, also notes that Canaan's stock price has been significantly affected by external factors in recent years, and the company lacks resilience to external risks, making it difficult for the market to see its investment value.

Future Outlook: Opportunities and Challenges Coexist

The Bitcoin surge and the attitudes of newly appointed regulatory bodies in Western countries may boost confidence among Bitcoin mining machine manufacturers, graphics card producers, and the entire ecosystem. However, institutional investors still need to focus on building robust business models and refining technological capabilities to cultivate unique competitive advantages.

Canaan's CFO, Cheng Jin, stated that the company will continue to provide mining machine products, enhance delivery capabilities, and meet the needs of global mining customers. Strategic investments in R&D, supply chain, and mining deployment will position the company favorably in the anticipated market recovery. The company projects total revenue of approximately $80 million in Q4 2024.

Despite the anticipated market recovery, Canaan still faces numerous operational risks. The company has been consistently losing money since Q1 2023, which is closely related to the industry's inherent characteristics. The complexity of the Bitcoin mining industry lies in its multi-dimensional industrial logic and operational risks, far exceeding typical investment or technology development activities. R&D, production, and deployment of mining machines require significant capital investment, and the value of these fixed assets is highly dependent on Bitcoin price fluctuations. Mining machine technology updates rapidly, and the market's demand for higher computing power and energy efficiency is constantly rising, requiring companies to continuously invest in R&D to maintain market competitiveness. The upstream and downstream links of the mining industry are closely intertwined, and any link can become a potential bottleneck for stable business operations.

The impact of the Bitcoin halving is not just the price changes caused by reduced supply; it's a comprehensive reshaping of the mining industry chain. For mining machine manufacturers, the post-halving market environment presents both opportunities and challenges. On the one hand, price increases stimulate miners' demand for high-computing-power mining machines; on the other hand, the narrowed mining profit margins after the halving force mining machine manufacturers to continuously improve product performance, energy efficiency, and price competitiveness. The halving will accelerate the consolidation of the mining ecosystem, gradually eliminating smaller miners, while large mining farms and institutionalized mining models will become dominant.

Canaan needs to address several key issues: persistently high operating losses; the potential weakening of mining machine demand due to reduced miner rewards after the halving; increasingly stringent global energy regulations and the carbon emission pressure on the mining industry; and the still-unformed diversification strategy beyond mining machine sales.

In conclusion, Canaan and other Bitcoin mining machine manufacturers need to place greater emphasis on technological iteration and business diversification to address potential risks such as industry concentration, policy uncertainty, and price volatility, enabling them to thrive in the fiercely competitive market.