What is shrinking even faster than bitcoin?
At least one answer to that question is BIT Mining Ltd. (NYSE:BTCM), one of the many cryptocurrency companies minted in China over the past two years in better times when bitcoin was booming. Of course, the opposite is now happening, which has put the future of many of these companies in doubt. Within that group, BIT Mining seems to be one of the most threatened.
On Monday, the company unveiled the latest step in its fight for survival, announcing a change in its ratio of US depository shares (ADS) which equates to a 10-for-1 reverse stock split. The move is relatively technical, designed to push the stock above the $1 level to avoid delisting in based on the New York Stock Exchange requirement that all shares trade above $1.
Based on its closing price on Monday, the reverse split, which takes effect on December 23, would bring BIT Mining shares up to $2.33, removing that delisting threat, at least for now. Shares fell 6% in aftermarket trading following the announcement, indicating investors weren’t particularly impressed. At its current level, the company is valued at just under $25 million, a fraction of where it was a year ago.
The biggest backstory, of course, is the big crash in bitcoin and other cryptocurrencies this year. Bitcoin is a reflection of the larger group, down around 64% this year. The collapse has so far dragged down some major companies, including the high-profile collapse of FTX (FTX-USD) last month.
The much larger field of smaller companies like BIT Mining is also facing huge difficulties, as many were miners using business models that relied on high cryptocurrency prices. At today’s prices, many of those business models no longer work, with the result that most of these companies are losing money and have had to halt much of their operations.
The biggest problem at the moment for BIT Mining, and many of its peers, is simple survival, with most using up their meager cash quickly. BIT Mining has been hard at work on that front, raising a combined $20 million in July and August through the sale of its 50.1% stake in its Loto Interactive unit for HK$78 million ($10 million), and another $9.3 million through the sale of new shares at a deep discount.
Frankly speaking, we are surprised that the company was able to find buyers for its new share issue, as BIT Mining could easily go out of business, making those shares worthless.
A look at the company’s cash holdings shows just how dire its situation is. His cash and cash equivalents stood at $12.5 million at the end of September, about half the $22.6 million he had three months earlier, according to his third quarter earnings report released last month. But if we add up the $20 million it raised during the third quarter of July and August, that means the company spent about $30 million in that three-month period.
It doesn’t take a rocket scientist to realize that BIT Mining’s remaining cash at the end of September would be insufficient to cover its costs through the end of the year at its current consumption rate.
Mining machine manufacturer?
BIT Mining is quite an old timer in China’s corporate business scene, with more than 20 years of history. He’s also a bit of a chameleon, having spent most of his early years in the gambling business as a third-party online seller of tickets for China’s two state-operated lotteries. That business model fizzled out around 2018 when China formally banned such third-party sales after several years of hinting at such a move.
After searching for a new business model for several years, the company thought it had finally found a winner in late 2020 with the booming cryptocurrency market at the time. He moved aggressively into space as a cryptocurrency miner, briefly seeing his fortunes and stocks soar. But all those gains have been wiped out in the current crisis, with BIT Mining’s shares plunging 96% so far this year, putting it among the worst performers in the group of related Chinese companies.
In its latest twist to stay in business, the company has announced plans to make crypto mining machines. Such a business is not much better than BIT Mining’s core business of making money through its own crypto mining operations. But the economy still seems to work in terms of being able to make a profit. An example of this is canaan inc (THEY CAN), which managed to remain profitable in the third quarter despite falling revenue.
BIT Mining provided updates on several mining machines it is developing in its third-quarter earnings report, most being developed by its Bee Computing unit. The most advanced is a machine used to extract Doge (USD-DOGE) and Litecoin (USD-LTC) cryptocurrencies, and the company said it hoped to mass-produce 3,300 of the machines in December or January.
The mining machine initiative likely explains the recent acceleration in the company’s cash burn rate, as new product development always requires heavy R&D spending.
But the time is clearly ticking for BIT Mining to not only build the new machines, but also to find buyers in the current depressed market. The company’s revenue, mostly derived from mining operations, plunged about three-quarters to $97 million in the third quarter from $393 million a year earlier. It managed to cut its operating costs by a similar amount, bringing the number down to $113.6 million from $414.2 million a year earlier.
The bottom line was that BIT Mining lost $22.2 million in its most recent quarter, marking a slight improvement over the prior year’s loss of $29.6 million. But a company that burns through cash as quickly as BIT Mining can hardly afford such losses. Its precarious situation is reflected in its minuscule current price-to-sales (P/S) ratio of just 0.01, which pales in comparison to Caanan’s 0.47 times and a 0.62 ratio for rival Chinese miner. The 9 (NCTY).
Editor’s note: The summary bullets in this article were chosen by the editors of Seeking Alpha.