Up More Than 300% in 2021, is Sphere 3D Corp. (ANY) a Buy?

Sphere 3D Corp. (ANY) is a Canadian-based software development company that offers data management, desktop and application virtualization solutions in the U.S. and worldwide.

ANY recently announced a merger with Gryphon Digital Mining, which indicates that the company’s entire business strategy is shifting to bitcoin mining with zero carbon footprint. This development has attracted investors’ attention and led to a more than 300% rise year to date (YTD).

Today, let’s analyze the company from a qualitative and quantitative standpoint to see if ANY stock is still a buy after a recent run-up.

Recent‌ ‌Developments‌ ‌ ‌

On June 3rd, Sphere 3D announced that it has entered into an “Agreement and Plan of Merger” with a privately-owned bitcoin mining company, Gryphon Digital Mining. Sphere 3D plans to enhance the new company by utilizing its “SnapMine” GPU-based converged solution for cryptocurrency mining. According to the details of the all-stock merger, Sphere 3D will issue 111 million shares to the Gryphon shareholders, while the current Sphere 3D shareholders will own 23% of the combined company. 

Also, Sphere 3D is obligated to change its name to Gryphon Digital Mining under the deal details. The new company will continue to trade on the NASDAQ. Furthermore, Sphere 3D recently raised about $192.1 million for the purchase of crypto mining machines. The merger is expected to close during the fourth quarter of 2021. 

On September 21st, the company announced that it made a payment of $85 million for 60,000 Antminer S19j Pros. The miners will be delivered in November 2021. After the merger is completed, the company will be able to mine about 1,300 bitcoin per month. 

Recent Quarterly Performance 

The company’s revenue remained flat on a year-over-year basis at $0.9 million for its second fiscal quarter, which ended June 30th, 2021. Its GAAP net loss per share stood at $0.19 as of 2Q2021 compared to a $0.41 loss per share in the year-ago period. In addition, the company generated about only $10 million in revenues over the past two years while incurring significant losses. 

We can see that the company failed to reach commercial success with its current business model. However, the transition to a new bitcoin mining entity looks like a winning move.   

When it comes to the growth prospect, Gryphon Digital Mining plans to generate revenues of $78.6 – $161.7 million in 2022 if the bitcoin price will stay in the range of $30,000 – $50,000 (Gryphon IR, Slide 23). The mining break-even price of BTC is expected to stand at $4,036/BTC. 

How much volatility are options traders expecting for the stock? 

Taking a closer look at the October 15th, 2021 option chain, we can figure out that ANY stock could rise or fall by about 42.5% by the October expirations from the $6.00 strike price using the long straddle strategy.

In addition, the number of open calls at the $6.00 strike price outweighs the number of open puts by around 31.6x, suggesting a bullish options market sentiment.

Some traders are even making short-term bullish bets. During the September 25th trading session, there was a purchase of about 3,573 $7.00 October 15th call options for $0.69 per contract. As a result, this transaction brings the total number of open contracts to 13,248 (source: barchart.com). A buyer of those calls needs Sphere 3D stock to rise to $7.69 by the expiration date to break even. That’s an upside opportunity of about 33% from Sphere 3D Tuesday’s closing price. 

The Bottom Line

In my opinion, I would rate ANY a “hold” until prices stabilize and the company moves into its new direction for some time. Though the company’s transition to a bitcoin mining operation looks promising, the stock experienced a meteoric rise in a short period of time. After such a surge, investors might want to resist the urge to chase after higher gains too soon.