Canaan may sell more bitcoin for stock buybacks as mining-rig revenue falls 96%

Canaan launched a $20 million share buyback program on Tuesday, part of a broader $100 million authorization approved by its board on Nov. 6. The company is actively pursuing repurchases as funds become available, citing the stock's significant decline as a key driver.

Shares in the Nasdaq-listed company have lost approximately 75% of their value this year through Wednesday's close. The move to monetize its cryptocurrency holdings is a direct response to this sharp drop and the company's belief that its stock is undervalued.

Revenue collapse

The company's hardware business generated just $4.8 million in third-quarter revenue, a 96% drop from $118.6 million a year earlier. Canaan attributed the decline to weaker demand and lower selling prices for its mining machines.

Despite the hardware slump, the company's own mining operation brought in $9.5 million in the third quarter, nearly double its equipment revenue. This internal mining activity helped offset some of the losses from the core business.

Canaan reported an $8 million quarterly profit despite a $42.9 million operating loss. Gains from revaluing its cryptocurrency and financial derivatives were key to this result, reflecting bitcoin's higher price at the end of the quarter.

Treasury constraints

Much of Canaan's treasury is already committed elsewhere. It held 1,875.5 bitcoins at Sept. 30, with 1,258 pledged against loans and 100 placed in a fixed-term product. The remaining 517.5 BTC were recorded directly as assets, worth $43.7 million at quarter-end.

Of its $72.8 million in cash and restricted cash, $50 million backed a letter of credit supporting infrastructure commitments. This left about $22.8 million outside the restricted balance, which management says will be used to support its share buyback program.

The buyback authorization lasts for 12 months, and the company can adjust its purchases according to its operating and funding needs. This flexibility allows Canaan to navigate the ongoing challenges in its hardware business while managing its treasury.