ChinaNet's Shift Away From Blockchain, Net Loss Send Stock Down 34%
The Beijing company, which provides ads and marketing services, said it lacks resources to continue its blockchain development.
The stock of ChinaNet Online Holdings Inc. (Nasdaq: CNET) plunged nearly 34 percent intraday Tuesday, to $1.45 per American depositary share, after the company posted its financial results for 2018 and announced it plans to "decelerate" the development of its blockchain services.
The Beijing-based company, which provides online advertising, marketing, and data analysis to businesses, said its revenue in 2018 grew 23 percent year-over-year to $57.1 million, thanks to the rise of search engine marketing and data services.
However, net loss for the full year widened to $14.1 million, or 88 cents per share, compared with $10 million in 2017.
The chairman, president, and chief executive of ChinaNet, Handong Cheng, announced a change in the company's focus as it lacks resources to further its blockchain development.
"In January 2019, the Cyberspace Administration of China introduced a series of new regulations for blockchain companies operating in China," Cheng said. "After such regulations became effective in February 2019, and in consideration of the broader slowdown of the global blockchain industry, we have decided to decelerate the development of our blockchain platform as well as other related products and services."
Cheng added, "We are evaluating other opportunities to transform our business and rejuvenate growth. However, the company is increasingly constrained by its lack of resources. Our original business model has limited profitability, while our plans for AI development and blockchain expansion lack the necessary capital resources required in the current period of uncertain regulatory conditions, both in and outside of China."
"Due to our weakened cash position, we must limit our expenses and investment in human resources," Cheng continued. "In the long run, we believe both AI and blockchain will change the whole industry. Due to our limited cash flow and on-going concerns, we plan to engage in a 30% to 45% reduction in our total employee headcount by the end of 2019. This will allow us to sustain and develop both blockchain and AI partnerships at a minimum level of commitment with our existing negative cash flow. We are actively meeting investors in order to secure additional capital investment and will keep our shareholders abreast of our continual progress."
ChinaNet had cash and cash equivalents of $3.7 million as of Dec. 31, the company reported.