Canaan: The Worst May Be Close To Being Over

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Canaan Inc. (NASDAQ:CAN), a institution that competes successful nan Bitcoin (BTC-USD) mining, ASIC machine spot and machine markets, has had a reliable mates of years, falling from a two-year precocious of astir $39.00 per stock connected March 8, 2021, to its caller 52-week debased of $1.87 connected December 28, 2022.

Most, if not each of its capacity is straight related to nan monetary policies of nan Federal Reserve, which person driven down nan value of Bitcoin while having a antagonistic effect connected nan cryptocurrency sector.

Looking ahead, nan awesome rumor for nan institution is whether aliases not nan Fed is getting adjacent to reaching nan precocious limit of its liking complaint increases, aliases it will proceed connected for a play of clip because of nan beardown labour market, and successful immoderate areas of nan market, ongoing stubborn inflation.

I still clasp to my thesis that nan Fed doesn't person a batch of room near to boost liking rates because of nan unit it would put connected nan U.S. authorities to salary its rising bill.

While I do judge location will beryllium immoderate much liking complaint increases, I besides judge it won't spell overmuch supra 5 percent arsenic a ceiling because of it being cost-prohibitive to nan Federal government.

With that successful mind, while I deliberation it's imaginable for Bitcoin to return different dive earlier entering into a play of a sustainable upward move, it appears nan worst whitethorn beryllium over, moreover if it erstwhile again tests its caller low; I don't spot it lingering adjacent nan $16,000 people aliases somewhat little for immoderate prolonged play of time.

I thin to deliberation it's not going to driblet to that level again, but it's imaginable that it could. But moreover if it does, I deliberation nan stock value of CAN will clasp supra its 52-week debased based upon it doing truthful erstwhile Bitcoin collapsed beneath $16,000 successful nan second portion of November 2022.

In this article we'll look astatine immoderate of nan numbers from its latest net report, and much importantly, really guidance is framing and responding to nan existent anemic situation successful nan cryptocurrency sector.

CAN Chart


Some of nan numbers

Revenue in nan 3rd quarter of 2022 was RMB916 cardinal (US$137.5 million), compared to gross of RMB1.3 cardinal successful nan 3rd 4th of 2021 - down 25.8 percent.

Gross profit in nan 3rd quarter of 2022 was RMB234.2 cardinal aliases US$32.9 million, down 74.8 percent sequentially, from RMB929.7 cardinal successful nan 2nd 4th of 2022, and down 68.4 percent from RMB741.7 cardinal successful nan 3rd 4th of 2021.

Net income successful nan reporting play was RMB61.00 cardinal (US$8.6 million), aliases US$0.34 per diluted share.

Cash and rate equivalents astatine nan extremity of nan 3rd 4th of 2022 was RMB2.00 cardinal (US$281.5 million).

It should beryllium taken into information that these numbers will beryllium little successful nan 4th fourth of 2022 because nan value of Bitcoin fell importantly beneath what it had been trading, connected average, successful nan 3rd 4th of 2022.

So, while expectations for nan 4th fourth should beryllium low, if nan value of Bitcoin continues to recover, nan numbers for nan first 4th of 2023 should show meaningful betterment complete nan 3rd and 4th quarters of past year.

Whether aliases not that will beryllium nan extremity of antagonistic conditions CAN has been operating successful will beryllium wished by nan actions of nan Federal Reserve.

Preparing for nan inevitable turnaround

Since nan value of Bitcoin and nan actions of nan Federal Reserve are retired of power of CAN, guidance is taking steps to strengthen nan crypto winter, arsenic good arsenic position itself for nan inevitable rebound successful nan value of Bitcoin, which will beryllium a powerful tailwind for nan company.

To that end, CAN has changed its attraction to cutting expenses, investing successful R&D for nan intent of processing caller products, and stabilizing its rate flow.

After utilizing immoderate of its Bitcoin holdings to salary for mining costs successful nan 3rd quarter, nan institution had 535.5 Bitcoins left; that's 188.7 Bitcoins much than it had successful nan 2nd 4th of 2022.

Another measurement it's taking successful respect to its mining business is to diversify geographically successful bid to mitigate risk, utilizing this clip to grow its world footprint.

As for further deploying machines geographically successful its mining business, nan institution expects to person an summation successful depreciation successful narration to its full costs.

One peculiar point I for illustration successful CAN's strategy is nan truth it is continuing to put successful R&D and isn't going afloat into endurance mode. Having rate and rate equivalents of US$281.5 cardinal is simply a affirmative catalyst it has astatine its disposal, which should salary disconnected for nan institution successful nan agelong term.

That is evidenced from nan preamble of 2 caller mining instrumentality models successful nan reporting period, which guidance claims is "a important betterment complete nan erstwhile procreation of mining machines."

At nan clip of nan net study guidance said it's preparing to wide nutrient nan 2 caller mining machines, saying wide shipments should motorboat nary later than nan early portion of 2023.

General outlook

During nan past net telephone nan institution said that wrong nan existent macroeconomic and liking complaint environment, it expected nan value of Bitcoin to stay nether downward pressure, and successful truth they were correct successful that outlook. It besides noted manufacture assurance would apt wane, which besides came about, arsenic did wide sentiment for Bitcoin and nan wide cryptocurrency market.

Taking that into consideration, guidance stated it was apt to person different reliable mates of quarters ahead, which see nan 4th fourth of 2022 and nan first 4th of 2023.

There's nary uncertainty nan numbers from nan 4th fourth are going to beryllium underwhelming based upon nan further driblet successful value of Bitcoin during that play of time. On nan different hand, if nan value of Bitcoin holds support and moves up from wherever it has been trading astatine recently, location could beryllium an upward astonishment successful nan first 4th results of 2023.

While that would beryllium welcome, what's astir important is really Bitcoin does for nan remainder of 2023, what steps nan Fed takes, and what investor sentiment for Bitcoin is successful nan quarters ahead.

In nan near-term investors shouldn't expect excessively overmuch retired of CAN, but further retired it should do very good unless there's an unforeseen event, aliases nan world system plunges into a terrible and prolonged recession.

To get an thought of what guidance thinks, it guided for full revenues for nan 4th fourth of 2022 to beryllium astir RMB310 million. That's very low, but based upon economical visibility and nan ceiling I spot concerning really precocious nan Federal Reserve tin raise liking rates, I deliberation that's going to beryllium nan bottommost for nan company.


I for illustration what I heard successful nan 3rd 4th net report, successful that guidance had a coagulated grasp connected nan challenges it faced, and didn't awkward distant from discussing them and really it would effect nan short-term capacity of CAN.

I besides liked its basal wide strategy of not only cutting costs, which was a given, but besides maintaining its momentum concerning R&D and not holding backmost connected processing caller products that should beryllium a tailwind arsenic nan crypto marketplace yet turns around.

For nan astir part, I deliberation nan worst is complete for CAN, and moreover if location are a mates of much bumps connected nan road, I don't deliberation nan banal is going to collapse, moreover if location are immoderate much corrections successful nan value of Bitcoin earlier it originates a sustainable upward move.

Since reaching its 52-week debased connected December 28, 2022, nan banal has recovered nicely, pushing up to astir $4.00 per stock earlier pulling to astir $3.00 per stock arsenic I write.

It wouldn't astonishment maine to spot it correct because of that speedy upward move, but barring a awesome antagonistic catalyst that isn't visible astatine this time, I deliberation nan institution has seen its worst and will astir apt waste and acquisition somewhat level successful 2023 until nan value of Bitcoin confirms it is successful betterment mode.

This article was written by

Gary Bourgeault floor plan picture

I americium a erstwhile finance advisor and proprietor of respective businesses. These days I put only for myself while continuing to constitute connected a assortment of financial and economical topics.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga

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