On Thursday, Compass Point adjusted its stance on Marathon Digital Holdings (NASDAQ:MARA), shifting from a Buy to a Neutral rating. The firm also increased the price target for the cryptocurrency miner to $25.00 from a previous target.
The downgrade came after Marathon Digital reported quarterly revenues of $132 million and a ProForma Adjusted EBITDA loss of $9 million, which fell short of expectations. The company's hash costs were reported at $0.05, below the estimates of Compass Point. Despite this, Marathon Digital has expanded its operations with the recent addition of approximately 372MW across three sites in Ohio. This includes two acquired sites with 122MW of interconnection approval and the potential for a 100MW expansion, as well as a 150MW Greenfield site in Findlay, Ohio.
In a strategic move, Marathon Digital announced the closing of a $1 billion senior convertible notes offering at a 0% interest rate due in 2030. This offering was upsized and oversubscribed, reflecting strong institutional interest in Bitcoin exposure. The company plans to use $199 million of the net proceeds to repurchase $212 million of its 2026 notes. The remaining funds are expected to be allocated towards Bitcoin purchases and general corporate purposes.
Compass Point forecasts that Marathon Digital will utilize approximately $480 million to acquire 5,000 Bitcoin and anticipates the company will end the year with around 34,000 Bitcoin on its balance sheet. This leaves an estimated $300 million to cover power and operational expenses over the next year. Looking ahead, Compass Point has increased its CY25 estimates for Marathon Digital, projecting the company to achieve 70 EH/s by the end of 2025. With most expansion coming from owned sites, the firm expects Marathon Digital to reduce power costs to below $0.05/kWh, contributing to a CY25 Adjusted EBITDA estimate of $657 million.
The analyst noted that while Marathon Digital stands to benefit significantly from rising Bitcoin prices due to its holding strategy, the firm does not anticipate considerable additional upside from the company's base business. Instead, it suggests that the majority of potential gains would derive from the company's balance sheet, which could command a premium similar to that of MicroStrategy. The revised Neutral rating reflects Compass Point's assessment of Marathon Digital's valuation based on fundamentals, despite the increased price target to account for higher Bitcoin prices.
InvestingPro Insights
Marathon Digital Holdings (NASDAQ:MARA) continues to attract investor attention, as reflected in its recent financial moves and market performance. According to InvestingPro data, the company's market capitalization stands at $7.93 billion, with a price-to-earnings ratio of 36.63. This valuation comes amid significant revenue growth, with the company reporting a 131.04% increase in revenue over the last twelve months as of Q3 2024.
InvestingPro Tips highlight that MARA is trading at a low P/E ratio relative to its near-term earnings growth, which aligns with the company's aggressive expansion plans and the analyst's increased CY25 estimates. The stock has also shown strong returns, with a 119.5% price total return over the past year, indicating investor optimism about the company's prospects in the cryptocurrency mining sector.
It's worth noting that while MARA has demonstrated impressive growth, it is also quickly burning through cash, as pointed out by another InvestingPro Tip. This observation is particularly relevant given the company's recent $1 billion convertible notes offering and its plans for Bitcoin purchases and operational expenses.
For investors seeking a more comprehensive analysis, InvestingPro offers 18 additional tips for Marathon Digital Holdings, providing a deeper understanding of the company's financial health and market position.
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