Canaan to Sell Bitcoin for $20 Million Share Buyback as Hardware Revenue Drops

Canaan uses crypto holdings to support stock price

Canaan, a company that makes bitcoin mining machines—the hardware used to create new bitcoin and process transactions—is selling some of its digital assets to buy back its own shares. This decision comes after the company's revenue from selling mining equipment dropped by 96% in the third quarter.

The company launched a $20 million repurchase program this week. Management intends to buy back shares more actively as more funding becomes available.

Key numbers from the third quarter report

• Hardware sales fell to $4.8 million, compared to $118.6 million during the same period last year.
• Canaan’s own mining operations earned $9.5 million, which was nearly double its revenue from selling hardware.
• The company’s stock price has decreased by approximately 75% so far this year.
• Despite a $42.9 million operating loss, the company reported an $8 million profit due to the rising value of its cryptocurrency holdings.

Strategy for funding share repurchases

CEO Nangeng Zhang stated that Canaan will maintain a long-term treasury of digital assets but will selectively sell some cryptocurrency to fund these buybacks. In a previous update, the company revealed it had sold 3,952 ether (ETH) and 54.5 bitcoin (BTC) for about $13.9 million.

The company used $5.4 million of that money in late August to buy 13.6 million American depositary shares. These are securities that represent shares of a foreign company on a U.S. exchange like Nasdaq.

The status of Canaan's bitcoin treasury

By the end of September, Canaan held 1,875.5 bitcoin. However, not all of this is immediately available. Most of the coins—1,258 BTC—were pledged as collateral for loans, and 100 BTC were placed in a fixed-term product.

This leaves 517.5 BTC recorded as liquid assets, which were worth about $43.7 million at the end of the quarter. Additionally, $50 million of the company's $72.8 million in cash is currently restricted to support infrastructure commitments.

Why the buyback matters for the mining manufacturer

Canaan’s management believes its current stock price does not reflect the true value of the business or its potential for growth. By buying back shares, the company aims to support the value of its stock during a period of weak demand for mining equipment.

The timeline for future repurchases

The board of directors has authorized up to $100 million for share repurchases over the next year. The current $20 million program is part of this larger plan. The company can adjust the amount it spends based on its funding needs and market conditions.

Sources

• CoinDesk