A BTC Proxy to Keep Your Money Out Of

The ultimate vote of confidence in a company is when a highly respected and successful investor invests in it. 

That’s what happened when billionaire investor George Soros revealed an investment in Marathon Digital Holdings (MARA) in his latest 13F filing last week. Our proprietary Trackstar data supports this investment, as financial pros’ searches for this ticker have surged in the last three weeks.

Marathon is a Bitcoin-mining company that’s losing money left and right. While it’s not a direct investment in cryptocurrencies, it’s a decent proxy for those who don’t want the hassle of opening a digital wallet.

The company’s shares have more than doubled in 2023, as Bitcoin (BTC) has had a strong rally to start the year. In addition, MARA remains one of the most heavily shorted stocks on the market. 

But should it be a longer-term investment?

Marathon Digital’s Business

Marathon Digital is building one of North America’s largest Bitcoin-mining operations. The company mints new Bitcoin daily. 

It produced 475 Bitcoin in December 2022, 1,562 Bitcoin in Q4 2022, and 4,144 Bitcoin in fiscal year 2022. It produced a record 687 Bitcoin last month.  

In addition to Bitcoin mining, MARA has invested in Bitcoin and holds a significant amount on its balance sheet. The company had unrestricted holdings of 7,815 Bitcoin as of December 31, 2022. 

MARA also generates revenues by selling mining equipment to other Bitcoin miners. 

The company’s stock price often fluctuates in tandem with Bitcoin prices. 

Financials

Source: Stock Analysis

Marathon’s revenues jumped from $4.3 million in 2020 to $150.4 million in 2021. 

But during the same period, its operating income went from -$9.7 million to -$85.0 million. To make matters worse, the company has generated $149.6 million over the trailing 12 months (TTM), over which time its operating income worsened to -$212.3 million. 

MARA is hemorrhaging money. Its profit margin is -179.5% TTM compared to -24.0% in 2021. 

It has $55.3 million in cash and $782.6 million in debt. 

Valuation

Source: Seeking Alpha

MARA has a gross profit of -$47.5 million TTM. It therefore has no P/E GAAP ratio, which is also true for other companies in the crypto sector, including Coinbase Global (COIN), Riot Platforms (RIOT), MicroStrategy (MSTR), and Hut 8 Mining (HUT). 

MARA trades at a price-to-book ratio of 1.4x, which is better than COIN at 2.6x and MSTR at NM (not meaningful), but not as low as RIOT at 0.9x and HUT at 1.1x. 

Marathon’s price-to-sales ratio of 5.6x is relatively high compared to its peers. COIN is at 2.8x, RIOT is at 2.9x, and HUT is at 2.6x. But MSTR is the worst among the group at 6.7x. 

Profitability

Source: Seeking Alpha

Not only is MARA not net profitable, its gross profit margin is negative at -53.3%. That’s significantly worse than COIN at 100%, RIOT at 40.5%, MSTR at 79.4%, and HUT at 15.7%. 

Believe it or not, Marathon’s net income margin of -179.5% isn’t the worst among the group. That title belongs to MSTR at -294.4%. The company closest to profitability is COIN at -24.3%, followed by HUT at -89.6% and RIOT at -128.7%. 

MARA has the worst EBIT margin among its peers at -222.5%. MSTR has the best with 2.1%, followed by COIN at -0.7%, HUT at -9.9%, and RIOT at -61.3%. 

Growth

Source: Seeking Alpha 

One of the bright spots in Marathon’s business is that revenues are growing. Its revenue growth of 61.2% year over year is better than COIN at -14.9%, MSTR at -2.3%, and HUT at 44.9%. RIOT led the group with revenue growth of 127.1%. 

MARA is constantly trying to boost efficiency. It’s now looking at dual-phase immersion, a cooling technology that could reduce capital expenditure on its servers by approximately 10%. 

Our Opinion 0/10

We don’t give a goose egg lightly here.

MARA shares are up more than 120% YTD. Shares have rebounded due to several factors, including the bounce in Bitcoin’s price, a short squeeze (more than 44% of the float is short), and an investment from the Soros Fund. 

But if you want exposure to Bitcoin, there are better vehicles.

MARA is highly unprofitable, and it’s unclear when or if it’ll turn the corner. It’s a trader’s stock, not an investor’s stock. That’s why we’re staying away from it.