Toronto, Canada-based Sphere 3D Corp. (ANY) provides data management and desktop and application virtualization solutions. Last year, ANY agreed to merge with Gryphon Digital Mining Inc., a privately held company that is focused on mining bitcoin using renewable energy. ANY aims to position itself as an industry-leading bitcoin miner with a zero-carbon footprint. However, the merger was delayed due to its complicated nature and is expected to close in the first quarter of this year.

ANY is advancing rapidly in the crypto space with significant capacity expansion initiatives. Last week, the company announced its agreement to purchase 60,000 units of new NM440 bitcoin miners from NuMiner Global, Inc., the exclusive distributor for all NuMiner Technologies Inc. products. ANY had previously contracted to purchase 60,000 ANTMINER S19j Pro miners totaling 6.0 EH/s for delivery this year. “The agreement to purchase the NM440 provides us the ability to increase our EH/s capacity on order by 440% over the next 13 months. The NM440 should also increase our overall efficiency, further improving margins and profitability as we scale our mining operations,” said Peter Tassiopoulos, Chief Executive Officer of Sphere 3D. However, the deployment is not expected to begin until June 2022 and extend through February 2023.

ANY shares rallied on the news. However, the stock is down 14.4% in price year-to-date. ANY has slumped 30.1% in price over the past year and 50.6% over the past six months. In addition, over the past five days, the stock declined 11.9% to close yesterday’s trading session at $2.67.

Click here to check out our Software Industry Report for 2022

Here is what could shape ANY’s performance in the near term:

Bleak Financials

ANY’s revenue increased 17% year-over-year to $1.04 million in its fiscal third quarter, ended Sept. 30, 2021. However, gross profit stood at $485,000, down 9.2% year-over-year. Its loss from operations grew 53.7% from its year-ago value to $2.55 million. The company’s net loss came in at $2.57 million, indicating an increase of 115.8% from its prior-year quarter, while its net loss per share was $0.07, versus the $0.17 year-ago value.

Poor Profitability

ANY’s 42.9% gross profit margin is 13.6% lower than the 49.66% industry average. Also, its EBITDA margin and net income margin of negative 145.80% and 186.39%, respectively, is substantially lower than the 14.20% and 6.46% industry averages

Moreover, ANY’s negative 9.14%, 4.11%, and 4.52% respective ROE, ROA, and ROTC compare with the 8.29%, 4.00%, and 4.91% industry averages.

Tightening Regulations

Towards the end of the last year, U.S. financial regulators released an inter-agency policy agenda for regulating cryptocurrencies, which it dubbed “crypto sprint.” The policy agenda sketches out a to-do list for 2022 to offer crypto players more clarity on the rules. Also, the Basel Committee has proposed two groups of capital requirements, including cryptocurrencies like bitcoin, which should be subject to a higher risk weighting of 1250%. However, large banks, including JPMorgan Chase and Deutsche Bank, opposed this capital level, calling it too conservative. “Regulators are promising actions that could probably impact decentralized finance and crypto trading,” said Jaret Seiberg, an analyst with Cowen & Co.

In addition, investors must report taxable 2021 transactions that involve bitcoin, ethereum, dogecoin, and other cryptocurrencies to the federal government. Also, China intensified its crackdown on cryptocurrencies last year, while Russia’s central bank proposed banning the use of and mining of cryptocurrencies on Russian territory, citing threats to financial stability, citizens’ wellbeing, and its monetary policy sovereignty last month.

POWR Ratings Reflect This Bleak Prospects

ANY has an overall F rating, which translates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has an F grade for Stability, consistent with its 2.18 beta.

ANY also has an F grade for Quality. Its negative profit margins justify this grade.

Among 165 stocks in the F-rated Software – Application industry, ANY is ranked #158.

Beyond what I have stated above, one can also view ANY’s grades for Sentiment, Growth, Momentum, and Value here. View the top-rated stocks in the Software – Application industry here.

Bottom Line

ANY has been investing significantly in expanding its operating capabilities in the crypto space. However, the company is awaiting closing its merger with Gryphon, and it might take some time before the company strengthens its footing in the industry. Also, the global cryptocurrency crackdown, with governments seeking to regulate digital currencies, could be a significant headwind. So, considering its weak fundamentals, we think the stock could be best avoided now.

How Does Sphere 3D Corp. (ANY) Stack Up Against its Peers?

While ANY has an overall POWR Rating of F, one might want to consider investing in the following Software – Application stocks with an A (Strong Buy) rating: Rimini Street, Inc. (RMNI), Commvault Systems, Inc. (CVLT), and Synopsys, Inc. (SNPS).

Click here to check out our Software Industry Report for 2022

ANY shares were trading at $2.72 per share on Thursday afternoon, up $0.05 (+1.87%). Year-to-date, ANY has declined -12.82%, versus a -4.47% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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