The diversified holding company, BitNile Holdings Inc. (NILE) has been active in the cryptocurrency space since late 2012. After trading as DOW Holdings and then Ault Global, the company adopted its current moniker to represent its pure-play crypto line. The company has many subsidiaries operating in different sectors, but its crypto-related business has been the main focus for several years now.

The company posted its Q1, 2022 earnings yesterday, May 23, 2022. While the earnings caused a short rally in the stock due to improved revenue, there are still many reasons to stay away from NILE. Firstly, it isn’t a good time at all to invest in crypto or related business, but what’s more important is the fact that NILE has a history of big losses and wider shareholder dilution. With extending losses, the company has been running out of cash consistently, thus raising money and diluting shareholder value. Moreover, the stock itself has suffered immense downfall, much more than crypto itself. Despite the saying that past performance is not indicative of future results, its history has been very alarming to inspire any kind of confidence.

Let’s have a close look at the company and stock.

NILE Stock Overview

The stock has collapsed from a split-adjusted $4,512 per share to just 31 cents presently. Those who bought the stock back in 2021, have lost roughly 97% on their investment, from when the stock was valued at $7.99 a share. And those who bought NILE even before that, in 2017 (the last crypto boom), would be down 99.99%. Currently, the stock is down by over 86% in the past twelve months and roughly 74% year to date.

Following the latest earnings of the company, the stock saw a rally of over 12% in the after-hours on Monday. But the gains shrunk to a mere 0.03% by the end of the session. It seems investors were initially very excited about the nice improvement in its revenue, but a closer and detailed look left them worried. While the revenue did go up YOY, the company incurred a huge net loss in the quarter against a profit last year.

Q1, 2022 Earnings Analysis

For the March quarter, NILE’s revenue shot up by nearly 150% (148%) to $32.8 million against the comparable $13.2 million. The preliminary results for the quarter had the company expecting an increase of 142% in revenue.

The income from operations was $1.0 million against $1.2 million, while the prior year’s net income of $2.0 million converted into a net loss of $28.8 million.

The operating expenses rose by $14.4 million from the comparable period to $21.3 million in the first quarter of 2022. The increased operating expenses were due to an uptick in R&D expenses, selling and marketing, as well as general and administrative expenses.

At the end of the quarter, the company has cash and cash equivalents of $39.4 million on March 31, 2022.

Cash Burn & Share Dilution

Its history of big losses has led the company on a quick cash burn path. Which in turn has forced it many times to raise capital and cause share dilution. And in order to maintain a major market listing, the company has also reverse-split its shares, which has caused its extremely high split-adjusted price.

Share dilution still remains very high, as according to an article by Investor Place last month, NILE’s outstanding share count increased by 477% in 2021 when it tried to raise funds through a stock offering. Since 2020, the outstanding share count has gone up from 9.6 million to 55.44 million and at the present, the number of its total outstanding shares is 279.04 million. Any stock dilution means a negative impact on the intrinsic value of the stock, but the dilution in the case of this stock is immense.

A higher amount of shares usually results in a reduced net loss, as share dilution is a means for a company to shrink the net losses. But in NILE’s case, even the immense dilution could not help it protect from high net losses. The company still came out with a big net loss of $28.8 million against net income last year.

Additionally, a further share dilution is also expected, as the company has only $39.4 million of cash balance right now. It might need to once again raise capital on dilutive terms for trying some more into making its crypto business successful.

The Takeaway

With a history of quick cash burn, unprofitability, and extending losses despite the immense share dilution, NILE stock has plunged down enormously. It now trades for pennies against its once four-digit figure price. Although the company’s last earnings reported a nearly 150% increase in revenue, there are still many alarming red flags about it to suggest a further decline in the stock.

The company has yet to make its crypto business successful but seems very unlikely as it has very little cash at the present and vastly increasing expenses and losses. While such a low price of a crypto-related stock might entice certain investors, the best thing t0 does is to stay as far away from NILE as possible. Although the big drop in price leaves very little space for a further double-digit decline, a Chapter 11 filing will trigger another huge downfall.

With its financial status and history, there is very little to say the company would hit it big with crypto mining operations. Even more so, amid the wider geopolitical and economic instability, crypto and equities downfall while the threat of a recession looms overhead, it is highly unlikely for the business to do well anytime soon.

Conclusion

Despite trading for pennies and the name crypto to it, the best thing to do right now is to stay as far away from NILE as possible. If one wants to invest in crypto, there are many better options out there in the form of crypto proxies or even crypto itself.