MARA Holdings (MARA) stock has surged by an impressive 1,872% over the past five years. However, shares actually fell in 2024 despite all the interest around Bitcoin (BTC-USD), much of it driven by the re-election of now crypto-positive Donald Trump. Despite MARA stock being in something of a trough, I remain bearish on it. There is simply too much risk, including the increasing challenges of mining Bitcoin and the currency’s own volatility.
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There’s More to MARA Holdings Than Meets the Eye
While I’m bearish on MARA Holdings (formerly known as MARA Digital Holdings), it’s certainly worth noting that there’s more than meets the eye here. While primarily known as a major Bitcoin miner, MARA has been actively diversifying its operations and revenue streams. The company has expanded into Kaspa mining, which has achieved over 80% profit margins as of October — although the Kaspa price has since plummeted.
MARA is also venturing into data center cohosting. The goal is to host artificial intelligence (AI) inferencing in addition to their Bitcoin mining in order to act as a load balancer to AI applications. This complements other activities, including collaborating on municipal heat generation projects, such as a pilot in Finland that uses recycled heat from Bitcoin mining to provide energy to 11,000 residents. The company is also exploring grid balancing and waste energy monetization.
There’s no doubt that the company is busy with its diversification efforts, but it remains highly focused on crypto assets, which have demonstrated considerable volatility in recent years. For example, some of MARA’s recent financial moves mirror MicroStrategy’s (MSTR) leveraged Bitcoin strategy. With a $300 million convertible note offering in August 2024 to buy $249 million in Bitcoin and a subsequent $850 million offering in December, MARA is increasingly leveraging debt for Bitcoin acquisition. This approach amplifies both potential rewards and risks for investors.
MARA Holdings Is Simply Risky
I’m bearish on MARA Holdings’ operations primarily because of the sheer size of the risk. The volatility of Bitcoin remains a major concern, with the cryptocurrency’s price fluctuations directly impacting MARA’s profitability — as you can tell, I’m not a Bitcoin investor. And given its Bitcoin HODL strategy, any gains will remain unrealized. This contributed to the Q3 2024 results, where the company reported a net loss of $124.8 million, despite revenue growth.
Moreover, Bitcoin mining itself has become increasingly challenging. The halving event in April 2024 reduced block rewards, intensifying competition among miners. Rising energy costs and increased global hash rates have further squeezed profit margins in the industry. MARA’s mining operations have also been affected by unexpected equipment failures and maintenance issues, impacting their Bitcoin production.
Despite diversification attempts, Marathon’s core business remains vulnerable to Bitcoin’s price swings and the evolving landscape of cryptocurrency mining, which continues to present significant hurdles for sustained profitability.
Diversification Isn’t Easy
I’d also raise some concerns about MARA’s diversification efforts. For one, it’s a late entrant in the competitive data center cooling market. The company’s dual immersion technology, MARA 2PIC700, while innovative, may struggle to gain substantial market share against established players.
The data center cooling industry is projected to reach $29.6 billion by 2030, growing at a 12.8% CAGR (compound annual growth rate). However, rapid growth attracts fierce competition, with major tech companies already heavily invested in advanced cooling solutions. MARA’s late entry puts it at a disadvantage in terms of market presence and customer relationships.
Additionally, the high investment costs associated with implementing new cooling technologies pose a significant barrier. Data center operators may be hesitant to switch from their existing cooling infrastructure to MARA’s solution, especially given the company’s limited track record in this space.
I’m Not Attracted by Mara Holdings’ Valuation
Finally, MARA’s valuation metrics don’t scream “Buy.” MARA’s EV (enterprise value)-to-Sales (TTM or trailing 12 months) multiple of 11.8x is significantly higher (242.31%) than the sector median, indicating the company is trading at a premium. Similarly, the Price-to-Sales (TTM) ratio of 9.1x is 173.88% above the sector median. These metrics suggest MARA is overvalued compared to its peers in the information technology sector.
Is MARA Holdings Stock a Buy, According to Analysts?
On TipRanks, MARA comes in as a Moderate Buy based on four Buys, eight Holds, and zero Sell ratings assigned by analysts in the past three months. The average MARA stock price target is $27.80, implying about 51.6% upside potential.
The Bottom Line on MARA Holdings
I’m bearish on MARA Holdings because there are significant risks that overshadow its potential rewards. Despite efforts to diversify into Kaspa mining, data center cohosting, and innovative cooling technologies, the company remains heavily reliant on Bitcoin mining. This exposes it to extreme volatility and operational challenges. Rising energy costs, increasing competition, and the April 2024 halving event have squeezed profit margins further. Additionally, MARA’s premium valuation metrics suggest it’s overvalued compared to peers, making it a risky investment in the current environment.
