Bitcoin Gains, but Marathon Digital (MARA) Investors Lose
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Over 15,000 businesses worldwide accept Bitcoin payments, including major companies like Microsoft, KFC, and Burger King. In the U.S., around 2,300 businesses accept Bitcoin. Yet, only 2% of the U.S. adult population has used Bitcoin to pay for real-world goods. Like it or not, Bitcoin is here to stay. And there is enormous growth potential. Despite all odds, the crypto OG has held near $60,000-$70,000 for most of 2024 after several years of double-digit gains and losses. Stability has attracted investors to adjacent plays, including Bitcoin miners like Marathon Digital (MARA), hoping to capitalize on business growth and cryptocurrency appreciation. Our previous reviews don’t hide our disdain for the company as an investment. However, part of that rested on Bitcoin price volatility. If we assume a stable coin that appreciates in value, does that change our opinion? |
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Marathon Digital’s Business As one of the world’s largest publicly traded Bitcoin miners, Marathon has carved out a unique niche by marrying cutting-edge technology with a commitment to sustainable energy practices. The company operates a fleet of over 250,000 mining rigs spread across 13 data centers on four continents, capable of producing 31.5 exahashes per second. But what really sets them apart is their focus on clean energy. In an industry often criticized for its energy consumption, Marathon is leading the charge toward more sustainable mining practices. Take their Garden City, Texas facility, for example. This 200-megawatt powerhouse sits next to a wind farm, tapping into renewable energy to fuel its operations. Marathon Digital Holdings segments its business into the following areas:
Marathon’s recent performance has been mixed. In Q2 2024, the company saw revenues rise 78% to $145.1 million compared to Q2 2023 but posted a net loss of $199.7 million, driven by a $148.0 million loss on the fair value of digital assets. In a strategic move, Marathon has shifted its treasury policy, now fully adopting a “HODL” strategy to retain all Bitcoin. This move reflects the company’s confidence in Bitcoin’s long-term value as a premier treasury asset. By August 31, 2024, Marathon held 25,945 Bitcoins, reinforcing this commitment. Financials
Source: Stock Analysis Marathon Digital’s fortunes rose alongside Bitcoin prices and its production. The company has enjoyed a small operating profit for the past year and a half. However, they have not generated positive cash flow from operations since Q4 2021. Usually, this would be a big red flag for us. However, they mark their Bitcoin holdings to market value, which impacts the P&L but doesn’t hit cash flow until they unload them. The problem is they need to raise cash to run the business as well as invest in CAPEX. So, they issue more stock, diluting current holdings rather than selling Bitcoins. In fact, the total shares outstanding have more than doubled since 2022. Yet, Marathon Digital only has $250 million in cash, which is less than its annual CAPEX. Plus, they burn roughly $115 million in cash from operations annually. This means shareholders can expect further dilution without an end in sight. Valuation
Source: Seeking Alpha On paper, Marathon Digital’s P/E ratio at 18.5x isn’t too shabby. That’s better than peers, including Coinbase (COIN), while fellow miner Hut 8 (HUT) is 1/3rd the valuation. None of these companies generate cash from operations, except Coinbase, which makes them risky bets. Growth
Source: Seeking Alpha No one can deny Marathon Digital’s revenue growth. It blows away everyone else on this list. Yet, its inability to turn this into profits and cash flow is readily apparent. Profitability
Source: Seeking Alpha It might seem odd to see Marathon’s net income margin exceed its EBIT margin. However, higher Bitcoin prices raised the value of Marathon’s holdings, which didn’t impact its operating income.
Our Opinion 0/10 We still believe Marathon Digital is a dangerous investment. The company chose to raise capital by diluting shares rather than selling digital assets, a big gamble on the future of Bitcoin prices. Quite simply, you’re buying a questionable business model to gain exposure to Bitcoin prices. In our opinion, owning Bitcoins directly or through ETFs provides a better risk/reward. |
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