Marathon Digital stock is falling despite higher Bitcoin prices. Here's why

In recent months, cryptocurrencies have witnessed a tremendous rally, with Bitcoin leading the charge. The rally has seen the most well-known cryptocurrency climb to well over the $60,000 mark (it currently sits at $62,421). Despite this, Marathon Digital (NASDAQ:MARA) stock is not performing so well lately.

As Bitcoin and other crypto prices have soared, investors anticipated that companies heavily involved in the ecosystem would benefit from this upswing, which is usually the way. However, Marathon Digital Holdings, a major player in the Bitcoin mining industry, has bucked the trend somewhat. 

Marathon Digital stock performance

While Bitcoin is up more than 47% this year and 162% in the last 12 months, Marathon Digital has declined 2.8% in the year-to-date. What’s more, MARA stock fell more than 16% on Thursday after missing fourth-quarter earnings and revenue expectations when it posted earnings after the close on Wednesday. 

While the stock has performed very well in the past 12 months (+260%), it currently sits just over $25 per share, way below its 2021 high of over $83. Over the last 52 weeks, shares are up 300%.

Marathon Digital earnings

MARA reported a fourth-quarter loss per share of ($0.02), $0.03 worse than the analyst estimate of $0.01, while revenue for the quarter came in at $156.7 million, above the consensus estimate of $141.55 million.

Following the report, renowned short seller Jim Chanos said on X that he is still trying to understand the Marathon Digital business model. 

“4Q EBITDA was $170M annualized, on $1B of capital invested in the business, ex-cash/crypto holdings($4 per share). Their 4Q breakeven cost was $42K per #Bitcoin. Like $MSTR, this is simply a leveraged bet on a commodity,” said the account.

Meanwhile, Compass Point analyst Joe Flynn said MARA's 4Q23 results were “strong from an uptime and BTC production standpoint, having mined ~4.2K BTC during the quarter, but weak from a cost ($0.065/kWh vs. our estimate of ~$.057/kWh and higher G&A) and margin perspective (52% GM vs our estimate 57%), resulting in pro forma Adj. EBITDA of $61M.”

Why Marathon stock is falling

Flynn went on to explain that “MARA benefits significantly from its estimated ~17K BTC on its balance sheet, causing the stock to be highly correlated to the price of BTC compared to other miners.”

However, he notes that with BTC now over $60,000, the stock has seen significant strength but was overextended and sold off after hours due to the miss.

The share price decline comes despite Flynn acknowledging that the MARA stock price has shrugged off the company’s operational challenges through the first quarter of 2024 and MARA acquiring and taking over management of Hut8/US BTC's data centers. 

The operational challenges related to downtime of its hosted miners at Applied Digital and maintenance as ownership and management of previously owned Hut8 transitions to MARA through the 1Q24. However, Flynn believes the headwinds look to be largely behind the company.  

Flynn adds that “the company trades at a significant premium to the rest of the space,” allowing it to continue using its liquidity and stock as currency “to pursue aggressive growth projects such as expansion to ~50 EH/s by 2025, site acquisitions, and technology projects like Slipstream and recently announced layer-2 BTC solutions.” 

Despite the share price decline, “MARA remains the 800-pound gorilla in the mining space,” according to Compass Point, and remains well positioned through the halving despite its weaker fundamentals relative to other miners.