BitNile Holdings' (NYSE:NILE) name change from Ault Global Holdings at the end of 2021 has elicited emotions among investors, especially with the company's profound penny stock status. Under its new reorganized operations, BitNile would focus on Bitcoin (BTC-USD) mining and decentralized finance (DeFi) initiatives. On its part, Ault Alliance's focus was on lending, offering defense and power solutions as well as EV charging products. However, the volatility of the Bitcoin market price and mining difficulty fluctuations is expected to hamper the growth of the stock.
I believe that BitNile is a hold. The company posted record revenue growth amid slow cryptocurrency operations. The company embarked on stable capital expenditures to increase investment options and provide stockholder value in the fiscal year 2022. However, The volatility in crypto and especially Bitcoin has exposed the company to a high degree of risk. At the moment, BitNile heavily depends on its senior management team and in my view, it may consider their interests as opposed to stockholders. Still, it will need to respond to the rapid technological advancements in the industry to survive.
In its Q1 2022 earnings report, BitNile announced a 142% revenue increase (YoY) at approximately $32 million from $13.2 million. At the time, gross profit ticked the highest at $28.5 million, a 200% increase from $9.5 million realized in the year ending in December 2020. These numbers are impressive considering the company is on a quest to become one of the largest publicly traded Bitcoin miners in the US. Despite the improvement, the company suffered a $24.2 million loss in 2021 and an increase of more than 1,150% in debt (YoY).
Speaking about debt, BitNile announced a full payment of $66 million in senior secured notes that were due at the end of March 2022. For hopeful investors, the repurchase of the notes will help the company free up the security interests in the company assets. What it means, is that BitNile's equity commitments will be freed up in the company's subsidiaries. It will also afford, its subsidiary TurnOnGreen to go public.
But this payment will make minimal impact considering the company's debt stands at $118.9 million. BitNile's liquidity ratio is slightly stable at 1.14X with its total liabilities surging close to 500% at $145.1 million (YoY) against $490.1 million in total assets. The first quarter of 2022 also saw NILE invest $127 million in its Bitcoin mining operations. This purchase included a $115 million purchase of miners and a $12.3 million purchase of infrastructure. This CAPEX will increase BitNile's asset hold and improve earnings from higher Bitcoin sales.
By the end of 2021, the company's return on assets (ROA) was minimal at -3.97% and its EBIT margin at -34.27%. We expect an increase in ROA in the second quarter of 2022 after the newly purchased Bitcoin miners augment the company's crypto sales.
On its part, Bitcoin has sunk to late 2020 levels close to 35% (YTD) sinking to as low as 26.4K.
In the past 1 year, other BTC miners such as Riot Blockchain (RIOT) lost 72.44%, Bitfarms (BITF) is at -65.60% and Marathon Digital Holdings (MARA) dropped 55.58% while Argo Blockchain (OTCQX:ARBKF) lost 71.20%. Bitcoin holder, MicroStrategy (MSTR) has also been affected currently sailing at -68% (YoY). After losing its peg to the dollar, TerraUSD (UST-USD) lost 90.86% with NILE at -88.71% in the past 1 year. It has not been an easy ride for algorithm-backed trading securities despite TerraUSD having a market cap close to $2 billion.
Still, BitNile's Executive Chairman and CEO, Milton "Todd" Ault, III was encouraged about the company's business momentum. While releasing the Q1 2022 results, he stated,
The first-quarter results represent a strong start of the year. We reaffirm our expectation to almost triple our top-line results in 2022 from 2021, growing revenue to more than $155 million in 2022."
While this guidance is feasible, it remains to be seen how much Bitcoins the company will sell based on its mining capacity to realize these numbers. BitNile began its mining operations in 2021 and mined up to 45.7 BTC through December 2021 (for its account). Into 2022, the company had 46.75 BTC (an increase of 2.3%) which at the time was valued at $2.2 million. This number represents 0.4% of the company's total assets which stand at $490.8 million. Total revenue from mining operations through 2021 was $3.5 million with a net income of $1.5 million. By calculation and inference, the company will have to mine and sell up to 3,300 BTC by the end of the year to realize the revenue guidance of $155 million.
BitNile only mines Bitcoin in the vast crypto space and its ability to generate revenue from its mining operations will depend on the market price. With its current downward spiral, it may take time before the company attains this goal. There is also a limited supply of the cryptocurrency being mined due to the blockchain's method of creating new BTC.
BitNile stated that its current cash balance as of December 31, 2021, was $21.2 million. On a commendable front, the cash and its equivalents have risen since 2020 when they closed the year at $18.7 million. As stated earlier, the increase in liquidity has augmented financing activities from BitNile's 2021 AT-The-Market (ATM) and debt offerings.
As of April 1, 2022, BitNile reported that its cash balance stood at $30 million. By the end of 2021, the net cash used in operating activities had soared 450.89% to $61.7 million from $11.2 million.
A look at these figures suggests that BitNile will not be able to last 12 months from December 2021 without raising new capital. The company will need more financing as soon as June 2022 or at the beginning of Q3 2022. What also caught my eye is the drained capital expenditures pool. At the end of 2021, the company reported the purchase of $75 million of Bitcoin mining equipment at Ault Alliance. So within one year, the company has spent more than $200 million on mining asset acquisition. Investment risk rises in commensurate with the size of CapEX especially when a company is yet to realize substantial revenue from its operations. Overall, the market may discount the uncertainties into the share price.
BitNile also announced that its subsidiary BitNile, Inc. is now owned 100% of Alliance Cloud Services. This company owns the Michigan Data Center with 617,500 sq. feet of mining space. In retrospect, NILE bought the Alliance Data from the parent company headed by Milton Ault.
BitNile intends to purchase a total of 20,600 BTC miners after it agreed with Bitmain Technologies. The goal will be to achieve a mining production capacity of approximately 2.24 exahashes per second in the long run.
The company will need more money going forward and it is left to be seen if the company will increase its outstanding shares which now stand at 268.3 million to raise funds. If not, a 1-for-20 reverse stock split is expected. The company's current cash reserve was received from gross proceeds of $200 million attained through the sale of 52 million shares of common stock at the 2021 ATM offering. After the offering was terminated in December 2021, the company then realized $110 million from the sale of 140 million shares of common stock from the 2022 ATM offering through March 2022. What is apparent here is the wide share dilution with each passing offering.
BitNile's management needs to maximize its return on investments after increasing its CapEx into 2022. It has been left to rely on ATM offerings as a source of cash instead of maximizing sales and profit maximization. The company's operations are rapidly draining the cash reserves and it may need to raise funds as early as June 2022. At the moment, Bitcoin's price volatility and fluctuations are further dwindling BitNile's prospects of making a profit. Still, the company has a chance to increase its revenue from heightened BTC mining operations in 2022. For these reasons, we propose a hold rating for the stock.
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