Executive Summary / Key Takeaways

• The9 Limited has undergone a profound strategic transformation, pivoting from its legacy online gaming operations to a primary focus on cryptocurrency mining, complemented by a renewed push into mobile gaming and Web3 platforms.
• The company has made substantial investments in Bitcoin and Filecoin mining infrastructure, with clear quantitative targets for hash rate and coin production by late 2022, and plans for Ethereum mining expansion.
• Recent financial performance shows a shift towards profitability in 2020 driven by asset disposals, but TTM figures indicate significant net losses and negative operating cash flow, highlighting the capital-intensive nature and volatility of its current core operations.
• NCTY leverages a dual strategy for mining machine acquisition (shares for secondhand, cash for new) and differentiates its gaming offerings through Web3 integration and a proprietary NFT platform, aiming for a comprehensive digital asset ecosystem.
• Key risks include the inherent volatility of cryptocurrency markets, regulatory uncertainties in China and globally, and the capital requirements for scaling mining operations, alongside the challenge of competing with larger, more established players in both crypto and gaming.

A Phoenix in the Digital Realm: The9's Evolving Strategy

The9 Limited (NASDAQ:NCTY) stands as a testament to corporate evolution in the rapidly changing digital economy. Incorporated in 1999, the company initially provided IT technical services and later became a prominent online game operator. Over two decades, NCTY has demonstrated a remarkable, albeit often challenging, ability to pivot, shifting its core focus from traditional online games to smart TV entertainment, and most recently, to the high-stakes world of cryptocurrency mining, while simultaneously re-engaging with mobile gaming and Web3 initiatives. This dynamic history underscores a strategic agility, yet also highlights the inherent volatility and capital intensity of the sectors it chooses to inhabit.

NCTY's current overarching strategy is to establish itself as a diversified high-tech internet company with significant stakes in cryptocurrency mining and digital entertainment. This involves leveraging strategic partnerships for operational efficiency, adopting innovative financing mechanisms, and differentiating its offerings in competitive markets. The company's foundational strength lies in its willingness to adapt and pursue new growth vectors, even if it means shedding legacy assets and incurring substantial investment.

The broader industry landscape in which NCTY operates is characterized by rapid technological advancement and shifting consumer preferences. The "multi-screen era," as identified by NCTY's management in 2013, saw internet applications expand from PCs to mobile and TV, a trend that continues to shape digital entertainment. More recently, the emergence of Web3 technologies and the burgeoning cryptocurrency market have presented new frontiers, which NCTY has actively pursued. The demand for data centers, driven by AI and other intensive computing needs, also indirectly impacts the cryptocurrency mining sector by influencing energy costs and infrastructure availability.

Technological Edge and Operational Scale in Cryptocurrency Mining

NCTY's foray into cryptocurrency mining represents its most significant strategic pivot in recent years. The company's core technology in this segment revolves around deploying and operating high-performance mining machines for Bitcoin and Filecoin. For Bitcoin, this involves specialized Application-Specific Integrated Circuit (ASIC) miners like WhatsMiner and AntminerS19j, which are designed for maximum hash rate—the computational power used to secure the network and mine new blocks. For Filecoin, the technology focuses on providing effective storage mining power, contributing to the decentralized storage network.

The company has rapidly scaled its mining operations. As of the Q4 2020 earnings call, NCTY had deployed Bitcoin mining machines contributing approximately 693 PH/S (petahashes per second) to the network, yielding about 3 Bitcoins per day. Looking ahead, management projected a significant increase, expecting to reach approximately 3,558 PH/S by October 2022, which would translate to roughly 15 Bitcoins per day, with a cumulative reward of around 5,200 Bitcoins. This projection, while assuming no new machine acquisitions and a stable global hash rate, highlights the company's aggressive expansion targets.

In Filecoin mining, NCTY had executed US$1.1 million in machine purchases and owned 8 Pebibytes of effective storage mining power. This capacity was expected to generate approximately 200,000 Filecoins by August 2022, though management prudently noted that continuous increases in the global Filecoin network hash rate would likely reduce actual rewards. Further demonstrating its commitment, NCTY signed another US$2 million Filecoin mining machine purchase and hosting agreement, anticipating a total of more than 80 Pebibytes of effective storage mining power upon full implementation. The company's strategy for acquiring mining machines involves a dual approach: using newly issued shares to purchase secondhand machines and cash for new ones, a method management found effective.

The "so what" for investors is clear: these technological investments and operational scaling are direct drivers of NCTY's potential revenue in the volatile cryptocurrency market. The ability to rapidly deploy and expand hash rate and storage power positions NCTY to capture a larger share of mining rewards, directly impacting its top-line growth. The strategic focus on Filecoin, which management views as having "very high potential" and a rapidly rising market capitalization, offers diversification beyond Bitcoin. Furthermore, the company's plan to invest in Ethereum mining signals a continued commitment to expanding its digital asset portfolio.

Financial Performance and Liquidity: A Snapshot of Transition

The financial trajectory of The9 Limited reflects its ongoing strategic transitions. For the year ended December 31, 2020, the company reported a net income attributable to ordinary shareholders of RMB397 million (US$60.8 million), a significant turnaround from a net loss of RMB190.6 million (US$29.2 million) in 2019. This profit, however, was "mainly attributed to the gain on disposal of subsidiaries," including an office building, rather than core operational performance.

More recent TTM (trailing twelve months) financial data as of September 29, 2025, paints a picture of substantial investment and ongoing losses. The company reported annual revenue of $111.71 million, but a net income of -$73.42 million. Operating cash flow stood at -$44.20 million, and free cash flow at -$62.20 million. These figures underscore the capital-intensive nature of scaling cryptocurrency mining operations and the challenges of achieving consistent profitability in nascent, volatile markets. Gross profit margin for the TTM period was -1.44%, operating profit margin -52.60%, and net profit margin -65.72%, indicating that current revenues are not yet covering the costs of operations and expansion.

Liquidity is a critical factor for a company in a growth phase. In February 2021, NCTY secured a standby equity distribution agreement with YA II PN, LTD., allowing it to sell up to US$100.0 million of ADSs over 36 months. While no funding had been requested as of the Q4 2020 earnings call, this facility provides a significant potential source of capital for future investments and operational needs. The company's current ratio of 1.19 and quick ratio of 1.19 (TTM) suggest a reasonable ability to cover short-term liabilities, though the negative cash flow trends warrant close monitoring.

Strategic Initiatives and Outlook: Beyond Mining

Beyond its core crypto mining focus, The9 is making a concerted effort to re-establish a strong presence in the gaming sector, particularly in mobile and Web3. On September 19, 2025, NCTY announced a joint venture acquisition to operate two proprietary mobile games: Ultraman: Hero Beyond Time and Glory All Stars. Glory All Stars has already proven its commercial viability, generating over RMB2 billion in cumulative gross revenue over the past four years with a healthy 40% gross margin. Ultraman: Hero Beyond Time, leveraging a massive global fan base, has garnered over 2.5 million registered users since its closed beta and is projected to surpass Glory All Stars' lifetime performance within three years after launch. This strategic move, involving a consideration of approximately US$9.7 million in cash and US$6.5 million in restricted shares tied to profit achievements, signals a renewed commitment to high-potential mobile gaming.

Furthermore, NCTY is actively developing "the9bit," an innovative gaming platform blending traditional play with Web3 rewards. This platform rapidly achieved nearly 2 million registered users in less than two months since its global launch in August 2025, and later surpassed 3 million. The9 is set to receive 19% of the $9BIT token supply for its contribution to the ecosystem, with plans for the token to be listed on a leading crypto exchange before December 31, 2025. This initiative positions NCTY at the intersection of gaming and blockchain, aiming to capitalize on the growing interest in GameFi.

Historically, NCTY also ventured into the smart TV market with its "Fun Box" set-top box through the ZTE9 joint venture, aiming to capture 90% of China's smart TV household users. While this segment's specific financial contribution is not detailed in recent reports, it demonstrates NCTY's past willingness to explore new digital entertainment platforms. Management's earlier outlook for the mobile business, articulated in 2012, projected significant profits within two to three years as the market matured, indicating a long-term perspective on this segment.

Competitive Landscape and Positioning

The9 Limited operates in highly competitive and rapidly evolving markets, facing rivals across its diverse business segments. In cryptocurrency mining, direct competitors include established players like Marathon Digital Holdings (MARA), Riot Blockchain (RIOT), and Hut 8 Mining (HUT). NCTY's financial metrics, such as its negative gross and net profit margins (TTM), suggest it currently lags behind some of these larger, more focused mining operations in terms of profitability and operational efficiency. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, NCTY's operational scale in Bitcoin mining, though growing, appears smaller than that of industry leaders.

NCTY's competitive advantage in mining stems from its strategic partnerships for machine sourcing and its dual acquisition strategy, which allows for flexibility in capital deployment. Its established presence and operational footprint in China, Eastern Europe, Asia, and North America could offer localized advantages, particularly in navigating regional energy markets and regulatory environments. However, this also exposes NCTY to regulatory dependencies in China, a significant vulnerability.

In the broader digital asset space, NCTY's "the9bit" platform and NFT integration differentiate it from pure-play mining companies. This strategy positions NCTY to compete with broader cryptocurrency exchanges like Coinbase Global (COIN), which also offers NFT features. While COIN likely leads in global market reach and user base, NCTY's specialized NFT community platform and focus on Web3 rewards could foster stronger customer loyalty in niche segments.

In the mobile gaming arena, the joint venture for Ultraman: Hero Beyond Time and Glory All Stars places NCTY against a multitude of domestic and international game developers and publishers. Glory All Stars' track record of over RMB2 billion in cumulative gross revenue and a 40% gross margin demonstrates a strong competitive product. The Ultraman IP provides a significant brand advantage. However, the Chinese mobile game market is characterized by "too many games with low quality," as noted by management in 2012, suggesting intense competition for user attention and monetization. NCTY's historical experience in game development and operation, coupled with its current focus on high-quality proprietary titles, is crucial for success.

Indirect competition also arises from infrastructure providers like MYR Group (MYRG), whose expansion in data centers could benefit NCTY's rivals by enabling more efficient operations. The broader industry trend of AI-driven demand for data centers could increase energy costs, impacting the profitability of energy-intensive cryptocurrency mining.

Risks and Challenges

Investing in The9 Limited carries significant risks, primarily stemming from the inherent volatility of its core cryptocurrency mining business. The price fluctuations of Bitcoin, Filecoin, and other cryptocurrencies directly impact revenue and profitability. Regulatory changes, particularly in China, pose a substantial threat to both cryptocurrency mining and gaming operations. The recent "Impersonation of the9bit on a Crypto Platform" incident highlights the cybersecurity and brand reputation risks associated with operating in the nascent Web3 space. The company has actively addressed this by contacting the crypto platform's legal team and support channels to report the impersonation and is working to remove fraudulent listings.

The capital-intensive nature of cryptocurrency mining requires continuous investment in new machines and infrastructure, which can strain liquidity and necessitate further fundraising. While the standby equity distribution agreement provides a funding avenue, reliance on equity dilution can impact shareholder value. Furthermore, technological advancements in mining hardware and increasing global hash rates can quickly render existing equipment less efficient, requiring constant upgrades. Management acknowledged that the actual Filecoin rewards would be less than projected due to the continuously increasing network hash rate.

In the gaming sector, competition remains fierce, and the success of new titles like Ultraman: Hero Beyond Time is not guaranteed, despite strong initial user interest. The ability to consistently develop and monetize high-quality games is crucial.

Conclusion

The9 Limited is a company in constant metamorphosis, currently driven by the dual engines of cryptocurrency mining and a revitalized mobile gaming strategy, underpinned by Web3 innovation. Its history of strategic pivots demonstrates a management team willing to adapt to new digital frontiers. The aggressive expansion in Bitcoin and Filecoin mining, with clear quantitative targets for hash rate and coin production, positions NCTY to capitalize on the growth of the digital asset economy. Simultaneously, the strategic investment in proprietary mobile games and the development of the "the9bit" Web3 platform signal a nuanced approach to digital entertainment, aiming for diversified revenue streams and enhanced user engagement.

However, the path forward is fraught with challenges. The inherent volatility of cryptocurrency markets, the significant capital requirements for scaling operations, and the intense competitive landscape in both crypto and gaming demand continuous strategic execution and financial prudence. While NCTY's technological agility and willingness to embrace new paradigms offer compelling upside, investors must weigh these opportunities against the backdrop of substantial TTM losses, regulatory uncertainties, and the need for sustained operational efficiency to translate its ambitious plans into consistent profitability. The company's ability to effectively manage these risks while continuing to innovate and scale its operations will be paramount to realizing its long-term value proposition.