Sphere 3D seeks Bitcoin mining ramp as Gryphon merger deal ends (NASDAQ: ANY)

artiemedvedev

A quick overview of Sphere 3D

3D sphere (NASDAQ: EVERYTHING) recently released its first quarter 2022 financial results on May 16, 2022 after mutually agreeing to end its proposed merger with Gryphon Digital Mining.

The company is looking to grow his bitcoin (BTC-USD) mining operations and will continue to work with Gryphon as it develops its mining capabilities.

Until we see more data on the company installing additional miners and the prospects for a Bitcoin price rally, I’m on hold for Sphere in the near term.

Introducing 3D Sphere

Sphere 3D, based in Toronto, Canada, was founded to provide a range of data center products and services.

It has since changed focus to become net carbon neutral Bitcoin and other cryptocurrency mining companies operating in North America.

The firm is led by Chief Executive Officer Patricia Trompeter, who was previously co-founder and managing partner of Ceres Capital Ventures.

The global market for Bitcoin mining is currently in a state of flux, with recent mining bans in China causing much of that country’s hash power to exit the network as these operators search for more suitable locations. .

Many mining companies have relocated to the United States, due to its largely predictable regulatory and legal environment and business-friendly approaches in a number of states.

The market value of mining depends on the price of Bitcoin, since the majority of the value going to the miner is a function of the current Bitcoin reward rate of 6.25 Bitcoin per block successfully mined.

Priced at $25,000 per Bitcoin, the annual mining rewards for the entire industry would be around $8.21 billion.

Key industry participants include:

  • Bitfarms (BITF)

  • Argo Blockchain (OTCQX:ARBKF)

  • DMG Blockchain (OTCQB: DMGGF)

  • Hive Blockchain (HIVE)

  • Mining Hut 8 (HUT)

  • HashChain technology

  • DPW Holdings

  • Layer 1 technologies

  • Riot Blockchain (RIOT)

  • Marathon Digital Holdings (MARA)

  • Others

Recent financial performance of Sphere 3D

  • Total revenue per quarter was uneven as the company operated a relatively small number of mining computers:

Total turnover over 5 quarters

Total turnover over 5 quarters (Looking for Alpha)

  • Gross margin by quarter followed approximately the same trajectory as that of total revenue:

Gross profit over 5 quarters

Gross profit over 5 quarters (Looking for Alpha)

  • Selling, G&A expenses as a percentage of total revenue per quarter remained quite high:

Sales over 5 quarters, G&A % of turnover

Sales over 5 quarters, G&A % of turnover (Looking for Alpha)

  • Operating losses worsened as the company continued capital-intensive and expense-intensive cryptocurrency mining operations:

Operating result for the 5 quarters

Operating result for the 5 quarters (Looking for Alpha)

  • Earnings per share (diluted) remained negative as shown in the chart below:

5 quarters of earnings per share

5 quarters of earnings per share (Looking for Alpha)

(All data in the graphs above are in accordance with GAAP)

Over the past 12 months, ANY’s stock price has fallen 80.7% compared to the US S&P 500 index decline of around 5.9%, as shown in the chart below :

52 week stock prices

52-Week Stock Prices (TradingView)

Valuation and other measures for Sphere 3D

Below is a table of relevant capitalization and valuation figures for the company:

Measure

Rising

Enterprise value

$56,690,000

Market capitalization

$40,000,000

Enterprise Value / Sales [TTM]

1:65 p.m.

Revenue growth rate [TTM]

-13.10%

Operating cash flow [TTM]

-$43,500,000

Earnings per share (fully diluted)

-$0.64

(Source – Alpha Research)

3D Sphere Commentary

In its latest earnings announcement (Source – Seeking Alpha), covering Q1 2022 results, management outlined its expansion plans to receive contract delivery of 60,000 Antminer S19j Pro mining computers by the end of 2022 .

It is likely that the company will receive these miners in time, as the overall supply of miners has increased in recent months due to a slowdown in Bitcoin price reduces demand in some ways.

As of the earnings announcement date (May 16, 2022), the company had not received its first test shipment of 12 NM440s Bitcoin miners as part of his 60,000 NM440 order. The company has a right to terminate the contract.

As for its financial results, total revenue was $1.4 million, of which digital mining revenue accounted for half for its first quarter of operation. Bitcoin mining computers.

Sphere generated high and growing operating losses in the quarter as it sought to accelerate the installation of its received miners. It also purchased an additional 125,000 certified emission reduction credits.

Notably, the company will not directly manage its data center activities, but will use Gryphon Digital Mining under a master services agreement.

For the balance sheet, the company ended the quarter with $25.7 million in cash and cash equivalents and $7.8 million in liabilities, including $1.1 million long-term.

Going forward, management’s primary goal is to bring as many miners online as possible while operating efficiently through its relationship with Gryphon.

One wonders if having your mining computers managed by a third party produces the most efficient results.

On the valuation side, the market still values ​​the company at an EV/Revenue multiple of almost 13.7x despite a bear market in cryptocurrency prices.

The main risks to the company’s outlook are how quickly it can bring its previously ordered mining computers online and deal with volatility in the price of cryptocurrencies.

A potential upside catalyst would be a recovery in the price of bitcoin, supporting the stock price in the process.

Another question is whether management intends to hold its mines Bitcoin as much as possible in its treasury, to sell a significant portion of it or sell all of it, minimizing exposure to holding risk.

Until we see more data on the company installing additional miners and the prospects for a recovery in the price of Bitcoin, I’m waiting for Sphere in the short term.

Comments are closed.