To The Moon

What’s shrinking even more rapidly than bitcoin?

At least one answer to that question is BIT Mining Ltd.(NYSE:BTCM$BIT MNG LIMITED SPON ADS EACH REP 100 SHS CL A (P/S)(BTCM)$ ), one of many cryptocurrency companies minted in China over the last two years during better timeswhen bitcoin was booming. Of course, just the opposite is true now, which has put many of these companies’ futures in doubt. Within that group, BIT Mining appears to be one of the most endangered.

On Monday the company unveiled the latest step in its fight for survival,announcing a change in its American depositary share (ADS) ratio that equates to a 10-for-1 reverse share split. The move is relatively technical, designed to bring the stock above the $1 level to avoid delisting based on the New York Stock Exchange’s requirement that all stocks trade above $1.

Based on its Monday closingprice, the reverse split, which takes effect Dec. 23, would raise BIT Mining’s shares to $2.33, removing that delisting threat – at least for now. The stock fell 6% in after-hours trading after 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 stood a year ago.

The bigger backstory, of course, is the huge crash of bitcoin and other cryptocurrencies this year. Bitcoin is reflective of the larger group, down about 64% this year. The crash has dragged down a few major companies so far, including the high-profile collapse of FTX (FTX-USD) last month.

The much-larger field of smaller companies like BIT Mining are all facing big difficulties as well, since many were miners that used business models reliant on high cryptocurrency prices. At current 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 right now for BIT Mining, and many of its peers, is simple survival, as most rapidly burn through their dwindling cash. BIT Mining has been working hard on that front, raising a combined $20 million in July and August through the sale of 50.1% of its 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 heavy discount.

Frankly speaking, we’re surprised the company could find any buyers at all for its new share issue, since BIT Mining could quite easily go out of business, which would make those shares worthless.

A look at the company’s cash holdings shows how dire its situation is. Its cash and cash equivalents stood at $12.5 million at the end September, roughly half the $22.6 million it had three months earlier, according to itsthird-quarter earnings reportreleased last month. But if we add in the $20 million it raised during the third quarter in July and August, it means the company burned through 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 burn rate.

Mining machine maker?

BIT Mining is quite an older timer on China’s corporate business scene, with more than 20 years of history. It’s also a bit of a chameleon, spending most of its early years in the gambling business as a third-party online seller of tickets from China’s two state-operated lotteries. That business model went up in smoke around 2018 when China formally banned such third-party sales after several years of hinting at such a move.

After looking for a new business model for several years, the company thought it had finally found a winner in late 2020 with the then-booming cryptocurrency market. It moved aggressively into the space as a cryptocurrency miner, and briefly saw its fortunes – and stock – soar. But all those gains have been wiped out in the current crash, with BIT Mining’s stock down 96% so far this year, making it among the worst performers in the group of related Chinese companies.

In its latest pivot to stay in business, the company has announced plans to make crypto mining machines. Such business isn’t too much better than BIT Mining’s core business of earning money through its own crypto mining operations. But the economics still seem to work in terms of being able to make profits. A case in point isCanaan Inc.(CAN), whichmanaged to remain profitablein 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 mine Doge (DOGE-USD) and Litecoin (LTC-USD) cryptocurrencies, with the company saying it expected to mass produce 3,300 of the machines in either December or January.

The mining machine initiative probably explains the recent acceleration in the company’s cash burn rate, since new product development always requires big R&D spending.

But the clock is clearly ticking down on BIT Mining to not only build the new machines, but also find buyers in the current depressed market. The company’s revenue, mostly derived from mining operations, plunged by about three-quarters to $97 million in the third quarter from $393 million a year earlier. It managed to slash its operating costs by a similar amount, dropping the figure to $113.6 million from $414.2 million a year earlier.

The bottom line was that BIT Mining lost $22.2 million in its latest quarter, marking a slight improvement from the $29.6 million loss a year earlier. But a company burning through cash as rapidly as BIT Mining can hardly afford such losses. Its precarious situation is reflected in its current miniscule price-to-sales (P/S) ratio of just 0.01, which pales compared to Caanan’s 0.47 times and a 0.62 ratio for rival Chinese minerThe9(NCTY).