MW MARA's moves beyond bitcoin mining may be good business, but bad for the stock
By Tomi Kilgore
Shares fell, even as bitcoin rallied to record levels, as J.P. Morgan said sell in the wake of MARA's quarterly results
Shares of MARA Holdings Inc. fell Wednesday, while bitcoin and other cryptocurrency plays were mostly rallying, after the bitcoin miner missed third-quarter revenue expectations and saw costs jump as diversification efforts continued.
The fact that MARA $(MARA)$, formerly known as Marathon Digital, highlighted diversification in a letter to shareholders, may disappoint investors who have recently been bidding up the stock, as cryptocurrency plays have been viewed as big beneficiaries of Donald Trump's election win.
Chief Executive Fred Thiel said on the post-earnings call with analysts that MARA was a "technology company," not just a bitcoin miner.
He stressed that MARA was "not chasing the next fad." The company's leadership team and the direction of the types of technologies MARA is bringing to the market "will position us very differently from anybody who looks at us as just a bitcoin miner," Thiel said, according to an AlphaSense transcript.
The stock dropped 2.6% in morning trading. The selloff comes after it had soared 55.4% since the election through Tuesday, as bitcoin (BTCUSD) took flight.
Read: As bitcoin nears $90,000, is now the time to buy?
Bitcoin rallied 3.7% into record territory, and has run up 31.6% since the election.
Among other bitcoin plays, shares of MicroStrategy Inc. $(MSTR)$ climbed 3.4% in morning trading, Coinbase Global Inc.'s stock $(COIN)$ eased 0.7% and Robinhood Markets Inc. (HOOD) shares tacked on 1.3%.
As part of MARA's diversification efforts, the company announced this week acquisition of compute capacity in Ohio, including two data centers, which helps increase MARA's exposure to the PJM power grid and is part of its diversification strategy.
As CEO Thiel wrote in a letter to shareholders, MARA is in "active discussions" with data center developers to create a symbiotic relations between artificial intelligence and bitcoin mining.
In addition to expanding mining operations, this strategy includes providing "robust infrastructure" for AI and high-performance computing $(HPC.AU)$ workloads.
J.P. Morgan analyst Reginald Smith said while MARA has no desire to manage AI and HPC compute, it is positioning itself as an innovative infrastructure supplier to other data centers and a leader in energy transformation.
That may be good for the company over time, but not necessarily for a stock that's been soaring as a bitcoin play.
"MARA is the largest publicly traded miner by hashrate, but is diversifying away from pure-play mining, while pursuing zero-cost energy initiatives, which we think is interesting and smart in the face of deteriorating economics, but not enough to justify MARA's premium valuation relative to peers, in our view," Smith wrote in a note to clients.
He reiterated his underweight rating on the stock.
Of the 14 analysts surveyed by FactSet who cover MARA, Smith is the only one who is bearish. There are six analysts who are bullish and seven who are neutral.
Meanwhile, the company reported late Tuesday net losses that widened to $124.8 million, or 42 cents a share, from 34 cents a share in the same period a year ago.
Total revenue rose 34.5% to $131.6 million, but that was below the FactSet consensus of $140.3 million, to mark the third-straight quarter of top-line misses, and eighth miss in 10 quarters.
Total cost of revenue jumped 75.5% to $198.7 million, including a 63.6% increase in the cost of mining and hosting services to $97.5 million.
The company mined 2,070 bitcoin during the quarter, and bought 6,210 bitcoin.
As of Sept. 30, the company said it held 26,747 bitcoin, including 20,266 bitcoin mined at an average cost of $43,805 each and 6,481 bitcoin bought at an average cost of $60,022 each.
That means the weighted average cost to acquire the bitcoin held was $1.28 billion. At current market prices, the bitcoin held would be worth about $2.44 billion.
-Tomi Kilgore
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(END) Dow Jones Newswires
November 13, 2024 10:28 ET (15:28 GMT)
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