Evaluating Marathon Digital Holdings
Marathon Digital Holdings Inc. (NASDAQ:MARA) is a key player in the digital asset mining and technology sector with a primary focus on cryptocurrencies, especially Bitcoin (BTC-USD). Despite being headquartered in Fort Lauderdale, Florida, the company’s operational hub lies in Texas and North Dakota. With a current market cap of $5.2 billion, MARA stands as one of the largest public BTC mining enterprises globally.
While some may view BTC, cryptocurrency, and decentralized finance as the future, the upcoming BTC halving in April 2024 poses a significant risk. The anticipated halving is likely to halve MARA’s primary revenue source. This substantial dependence on a single revenue driver, coupled with the company’s lack of positive operating income and continuously diluting shares, raises concerns about its current valuation. Despite MARA’s stock witnessing a staggering 450% surge last year and BTC’s impressive 162% year-on-year rise, the company has failed to achieve a positive operating income since 2016. Moreover, it has never recorded a positive EPS, making it a risky investment at its current price.
By most valuation metrics, MARA appears overvalued, with a highly unfavorable P/E FWD ratio of 355x. This valuation, combined with the company’s unimpressive profitability, notably higher than its peers such as RIOT or HUT, indicates caution. Although certain industries experiencing exponential growth, like EV or Biotech, might tolerate poor valuation and profitability, the BTC mining sector faces potential downsizing and consolidation due to BTC halvings. Hence, the company’s longevity depends primarily on widespread BTC adoption or a substantial increase in usage, both risky prospects.
Financial Standing
MARA’s revenue predominantly stems from BTC mining and capital gains on its BTC holdings. With the company possessing 15,174 BTC worth approximately $667 million at the current BTC price of $44,000, any fluctuations in BTC price directly impact the balance sheet and income statement. While surges in BTC price can bolster the company’s financial health, it also renders the firm vulnerable to adverse market conditions.
The company has benefited from a substantial uptick in BTC transactions, with over 500k transactions per day becoming the norm. This surge has led to a notable increase in transaction fees, constituting a record 22% of their total BTC production in December, approximately $16.7 million. Additionally, MARA improved its BTC mining efficiency, witnessing a 253% YOY rise in energized hash rate (EH/S) from 7.0 to 24.7. The company’s recent acquisition of two operational centers from Generate Capital is anticipated to reduce the cost per coin mined by 30%, as per CEO Fred Thiel.
While the revenues for Q3 of 2023 reached record highs at $97.8 million, profitability remains a concern. Despite the positive EPS in the same quarter, derived mainly from debt extinguishment, the company’s income from operations reported a loss of $15.6 million. Additionally, record D&A costs offset the rising EBITDA, reflecting the company’s shaky financial position.
Regulatory Landscape & Future Projections
Rumors regarding the potential approval of BTC ETFs by the SEC have significantly stirred the BTC market in recent months. The approval of BTC ETFs, led by prominent financial institutions like BlackRock and Franklin Resources, could mark a pivotal moment in integrating the cryptocurrency economy into the current financial framework.
