Canaan Q2 financial report: revenue and profit growth in the third quarter are positive, but Fidelity has been completely cleared

On August 21, Canaan released its second quarter and semi-annual report, showing net income of RMB 178 million in the second quarter, a 16-fold increase from the previous quarter, and gross profit of RMB 43.3 million in the second quarter, a 17-fold increase from the previous quarter. The adjusted net loss in the second quarter of 2020 was RMB 16 million.

In the first quarter financial report released by Canaan on May 22, revenue was 68.3 million yuan, a year-on-year increase of 44.6% from the first quarter of 2019, and the adjusted net loss was 38.2 million yuan (5.4 million US dollars). Gross profit increased from 2.4 million yuan in the first quarter of 2020 to 43.3 million yuan in the second quarter.

This shows that after the rise in Bitcoin prices, Canaan's revenue increased and losses decreased in the second quarter, and the company's operating conditions have improved. However, for various reasons, Canaan's stock price has been relatively sluggish, and recently fell below $2, with a total market value of only about $300 million.

In contrast, another listed mining machine company, Ebang, whose revenue and profit are about half of Canaan's, has a total market value of about US$800 million and a share price of US$6. The reason may be that Ebang dares to actively release expectations to guide investors, such as 5G telecommunications business and cryptocurrency exchange business. However, the mining machine and AI chip business led by Canaan Beijing is not "sexy" enough and does not seem to be recognized by American investors.

The reason for Canaan's sluggish stock price is also due to the pressure brought by the unlocking of senior executives. In particular, in July, Canaan had a power struggle in two places, and the former co-chairman Kong Jianping, the former director Sun Qifeng, the former head of the financial system and senior vice president Zhang Li, and a group of senior executives in Hangzhou withdrew. The current disclosed financial reports cannot show the changes in the shareholdings of senior executives.

But from a certain perspective, compared with Ebang, which has a relatively smaller revenue share, Canaan's market value is less than half of the latter. Its market value is obviously underestimated, and investors have an opportunity to take advantage of it.

There is a relatively bad news. Wu said that the blockchain found that the largest investment from institutional investors in the first quarter, Fidelity, has been cleared. As of March 31, Fidelity increased its holdings of 2,338,558 shares of Canaan Technology, holding 1.49% of Canaan's shares . But as of June 30, Fidelity and Renaissance Foundation have been completely cleared. Fidelity and Renaissance are both top global asset management companies, and are keen on the cryptocurrency industry. This may indicate that Canaan is not a long-term investment target for either, but a short-term arbitrage investment.

The good news is that Canaan's flagship model A1166Pro is being launched and sold in futures, which will bring a lot of benefits to the financial situation in the third and fourth quarters. Previously, Canaan's A11 series was plagued by insufficient technical strength and could not deliver competitive spot goods for a long time. Now it seems that A1166Pro seems to have made some progress, with an energy efficiency ratio of 42J/T, which is comparable to Shenma M30S 38J/T. Shenma's serious production capacity is insufficient this year, and Bitmain's internal strife cannot deliver in large quantities. It is a good opportunity for Canaan to return to the first echelon.

Canaan Chairman Zhang Nangeng also said that due to strong market demand, the company expects to record a significant increase in prepayments and prepaid expenses from customers in the third quarter.

Against the backdrop of a unified team, the launch of new mining machines, and the gradual maturity of AI business, external competitors each have their own constraints. It remains to be seen whether Canaan can take advantage of the situation and turn things around in the third quarter.