In addition to revenue growth and cost control, OSL also achieved significant improvement in profitability in this report.

Written by Babywhale, Techub News

Some time ago, OSL Holdings, a Hong Kong-listed company under OSL Holdings, one of the compliant exchanges in the Hong Kong stock market, released its unaudited interim annual results report. In the six months from the beginning of 2024 to June 30, OSL recorded revenue of HK$123,800, a year-on-year increase of 17.7%; operating losses were significantly reduced by 90.2% from HK$98.9 million to HK$9.6 million.

Although the performance in controlling operating losses is impressive, it is only less than 20% higher than ours in the market environment in the past six months, which is indeed unsatisfactory. Further reports later showed that OSL did show its determination to cut off its own arms in controlling costs and expenses, and the effect of business focus was immediate. However, the performance of Hong Kong's compliant exchanges in their main businesses has left a big gap between them and the well-known large exchanges in the Web3 industry.

How to achieve a loss reduction of more than 90%?

From the preliminary audited financial report released by OSL, it can be seen that the reduction in losses mainly came from the reduction in "operating losses" and the substantial increase in revenue. The reduction in financial operating losses was caused by many factors, including the increase in operating income and the reduction in expenses. OSL gave explanations for each of them, but we can understand OSL's operating conditions from the explanations.

The increase in business income does not come from transaction volume

First of all, in terms of revenue, due to the booming market this year, OSL’s operating income grew by 17.7% over the same period, a figure that corresponds to a rather sluggish market in the same period last year and a booming market this year, and seems to be growing but not as expected.

From OSL's financial report, we can see that the revenue generated by "digital asset trading" accounts for the majority, which is different from the "transaction fee" that we usually understand as the main income of exchanges. In response to this, the author consulted OSL on the specific business form. OSL related personnel said that OSL's main business includes OTC and using its own assets as a counterparty to trade with customers. At the same time, OSL genes also conduct hedging transactions when trading with customers, and hedging the buying and selling spreads at that time has become OSL's main source of income. This is actually the "sales" service launched by the OSL official website.

Therefore, for OSL, the amount of tax exemption of its funds is related to the trading volume and how to keep the crypto assets it holds within a reasonable range. OSL needs to ensure that its own holdings can meet the trading needs of customers, and this is not because there are too many assets in reserve that lead to asset impairment and loss risks.

The so-called fair value of digital assets is the premium or discount of the purchase price of the crypto assets still held by OSL compared with the price of the day, as reported by OSL on the day. As for SaaS service income and automated trading services, the income includes transaction-related services provided by OSL and the fees added by the exchange.

OSL's revenue from "digital asset trading" in this report increased by 34.5% year-on-year, and its SaaS service fee revenue increased by 68.2% year-on-year, both of which became the key to growth. The overall trading volume actually shrank significantly.

This could to some extent indicate that OSL has made further progress in its asset hedging capabilities, while both the paying customers and paying customer capabilities of SaaS transactions have improved.

All costs have been significantly reduced

In terms of costs, controllable costs including fees and commissions, staff, and IT costs all achieved year-on-year declines, with declines of 73.9%, 9.7%, and 44.5%, respectively. OSL gave a relatively detailed explanation of these three aspects.

In terms of fees and commissions, OSL has provided too many payment commissions for introducing platform exchanges to users in this report. It may have shifted more to self-operation or reduced the proportion of commissions. The specific situation report needs to explain.

The increase in employee costs is not large, but in terms of "information technology" costs, OSL's main information technology costs refer to compliant digital asset business and enterprise technology infrastructure, and the completion of the infrastructure upgrade has significantly reduced costs in the period.

Increase in financial income

In addition to the changes, financial income has also become a worthy data. According to the report, the financial income of this report increased by nearly 370%, and the financial cost decreased by 54.6% compared with the above, which made the current financial net income reach 8.595 million shares. It is expected that the net loss of 1.647 million Hong Kong dollars in the same period last year will be a qualitative improvement. So why is there such a big price difference?

In this year's report, OSL clearly explained what financial income and expenses specifically include, but from the notes to its 2023 report, OSL listed the specific items included in revenue costs:

Although the details of financial income are listed in detail in this report, from the "Liquidity and Financial Resources" section of the report, we can understand that OSL's assets increased by 32.9% to HK$1,914.7 million from HK$1,440.8 million in the same period last year, and increased by 21.6% to HK$800 million from HK$1,045.7 million in the same period last year. The cash liabilities payable to customers in this period were HK$748.9 million, which is equivalent to a nearly 4-fold increase from HK$165 million in the same period last year.

The above data all indicate that OSL’s financial situation improved significantly in the first half of last year during this reporting period, and naturally there were improvements in financial revenue and expenditure as well.

Focus on core business and initial results

Since this report is not an audited report required to be disclosed by regulators, the content is relatively small, but we also obtained some valuable information from the limited content.

First, OSL's main business comes more from OTC block trades, and this report shows that OSL's hedging capabilities when using its own assets as counterparties to trade with clients have been significantly improved, which has enabled this report to achieve a substantial increase in trading revenue even as the trading volume has decreased.

In addition, OSL has made great efforts in cost control. In addition to the above implementation data, OSL also disclosed in the report that it sold 90% of the equity of Shanghai Vision, which provides business park management services, in March this year, further focusing more on its core business.

In addition to the increase in revenue and cost control, OSL has also achieved a significant improvement in profitability in this report. The above has jointly driven a significant reduction in OSL's losses. OSL is still in the report and is confident that it will focus on retail business and achieve revenue in the next year. If the annual report to be released next year shows that the trend continues to strengthen in the next step, then the future development of OSL is worth looking forward to. However, from other aspects, OSL's trading volume is indeed inspiring. As a legally regulated exchange in Hong Kong, how to expand its business under the background of many restrictions and compete with some "non-compliant in Hong Kong" but larger cryptocurrency exchanges is a top priority.

When should Bitcoin price be revisited as a trading strategy?

On the second trading day after OSL released its report, OSL Group's stock price rose for a short time, but the upward trend continued. In fact, the stock prices of companies associated with cryptocurrencies have been linked to the price of Bitcoin for quite a long time. OSL is no exception. Even with a significant reduction, the interference with the price of Bitcoin has not been strong, and its stock price has not reversed dramatically.

This is particularly true for MicroStrategy, a US-listed company:

However, the author would like to remind investors that as more and more Web3 companies go public in the future, the ultimate value of a company is determined by its business operations. Companies like MicroStrategy have never existed before and will never exist again. The crypto market and the securities trading market for crypto-related companies are not rational enough, and many investors still use the price of Bitcoin as a criterion for judging trends. However, based on the current development of the industry and the continuous progress of Hong Kong's compliance, it is believed that the trading logic of a large number of company stocks will gradually return to the business itself in the future. At this time, ignoring financial data and only based on the price fluctuations caused by some irrational transactions in the trend of the cryptocurrency market may become a good investment opportunity in the next few years.