When an organization’s whole web value is tied to a wildly fluctuating asset, it will get troublesome to investigate the inventory. Do you analyze the inventory, or the asset?
What if the asset is worn out? Does the corporate have one other income? Marathon Digital Holdings (MARA) mines cryptocurrencies, primarily Bitcoins. When Bitcoin (BTC) costs rose quickly in 2021, Marathon inventory surged as effectively.
It hit $76 in November 2021. Since then, Bitcoin costs have crashed, and Marathon has adopted go well with. The inventory closed at $11.39 on Might 13, down round 85%. We’re bullish on Marathon regardless of the large fall.
Marathon wasn’t at all times a Bitcoin miner. From its inception in 2010 till 2021, the corporate was a patent holder. It was known as Marathon Patent Group, and held patents within the encryption house. Final 12 months, the corporate modified its identify, changed its CEO, and obtained into the Bitcoin mining enterprise.
Marathon’s enterprise mannequin capabilities this manner: Miners want expertise and computing energy to mine Bitcoins. Marathon supplies it. Its expertise helps miners mine Bitcoin sooner.
The velocity of mining Bitcoin known as hash price. The higher the tech, the sooner the hash price. The extra the miners, the extra Bitcoins they will mine. Marathon deploys miners and supplies them with tech to mine Bitcoin. Marathon then sells the mined Bitcoin to make a revenue.
Q1 Numbers
The corporate reported its earnings for Q1 2022. Income elevated 465% to $51.7 million from the identical quarter in 2021. Nevertheless, it decreased by $8.6 million, or 14%, from This fall 2021.
Marathon’s Bitcoin manufacturing elevated 556% to 1,259 Bitcoin for the quarter, in comparison with 192 Bitcoin in Q1 2021. It additionally elevated 15% from This fall 2021. The truth that income decreased $8.6 million, despite the fact that manufacturing was up 15%, exhibits how dangerous the numbers have been hit with falling worth of the flagship cryptocurrency.
The corporate mentioned that the income decline in comparison with This fall 2021 was the results of a fall of round 25% in common income per Bitcoin mined. Marathon had a money steadiness of $110.8 million on the finish of Q1.
The overall variety of miners deployed by the corporate on the finish of the quarter was 36,830. This quantity goes to extend exponentially in 2022.
Fred Thiel, Marathon chairman and CEO, mentioned, “We imagine 2022 might be transformational for Marathon as we’re within the technique of deploying practically 200,000 miners and transitioning our operations to be 100% carbon impartial.”
12 months-to-date, Marathon has produced 1,558 Bitcoin, a rise of 340% from Q1 2021. The corporate owns a complete of 9,673 BTC, with a good market worth of $365.5 million.
The final time Marathon bought its Bitcoin was on October 21, 2022. Marathon has been “HODLING” on to BTC since then. In January 2021, it bought Bitcoin for a mean worth of $31,168 per coin.
Wall Avenue’s Take
Marathon has a Robust Purchase consensus ranking on TipRanks, with 4 Buys assigned over the previous three months.
The typical Marathon price target is $42.75 which suggests 287.9% potential upside.
Bottom Line
The company’s Q1 earnings were fine. Yes, the company reported lower revenue on a sequential basis, but that is only due to Bitcoin prices falling.
Bitcoin has a tendency to make drastic moves. This is where the company’s HODL strategy comes into play. If Marathon continues to stick to its HODL strategy, the stock price will surge after Bitcoin prices bottom out and start to move up.
It is sitting on a decent-sized cash balance. The number of miners it is planning to deploy this year indicates that it expects Bitcoin prices to remain subdued for quite some time, and that it wants to press home the advantage it has. The cash it has should help it survive and mine Bitcoins.
If you look at Bitcoin prices historically, it has a tendency to hit peaks and immediately follow them by deep troughs. It is entirely possible that Bitcoin prices could go in for another round of correction. Marathon’s stock price falls in correlation to Bitcoin prices. We feel Marathon is an attractive investment at this point even if Bitcoin falls a little more.
However, Marathon has to guard against the dual-edged sword of rising energy prices and inflation. Both these factors will make it tough for Bitcoin to bridge the gap.
Thiel is also open to an acquisition. In an April interview with Bloomberg, he said, “If somebody offers us a huge premium over our market cap, I have to take it under consideration and that may be the right thing to do for the investors.”
Thiel says the logic behind someone buying Marathon is that an energy company can sell its electricity to itself at a lower cost. It can scale up by acquiring a big miner, and Marathon is one of the biggest miners out there.
If you are a Bitcoin believer, you should hold Marathon stock. The only questions left to answer are: Will Bitcoin prices move up? If it does, how long will that take? Will Marathon HODL until then?
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The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.