Marathon Digital: A Potential Key Cog In Post Halving Bitcoin Mining

seekingalpha2024-04-12

Marathon is now selling its proprietary mining technology to other Bitcoin miners.Using Marathon’s technology could lead to more efficient mining operations and save costs which will be critical after...

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MaeTan
2024-04-13
MaeTan
Thank u for such a detailed article!
Barcode
2024-04-12
Barcode
Great article, thank you 🤩

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Since my last article, Marathon is down 33% while Bitcoin is up 30%, even reaching new all-time highs during that period. That said, I remain bullish on Marathon thanks to its recent moves to diversify its revenue streams by selling its Bitcoin mining technology.In my opinion, this positions the company to benefit from the upcoming Bitcoin halving event as miners look to mine the cryptocurrency more efficiently as a result of the expected increase in mining difficulty. In addition, as Bitcoin’s price increases, Marathon could generate significant recurring revenues thanks to a 2% developer fee it charges users for mining the cryptocurrency using its technology. Given that Marathon’s technology could be attractive to all Bitcoin miners due to their benefits, I’m reiterating my buy rating with a price target of $31.03 per share, implying 73% upside from current levels.Revenue Diversification Could Lead to Industry DominationIn late March, Marathon unveiled MARAFW and MARA UCB 2100, an advanced firmware and control board that enhances Bitcoin mining rigs’ performance and efficiency. MARAFW and MARA UCB 2100 are compatible with most stock control boards and feature hashrate optimization, auto-tuning, overclocking, underclocking, and intelligent thermal protection.Marathon has been working on developing and testing the firmware and control board for the past year and showed positive results while rolling out this technology across its fleet of mining rigs. As a result, it is now offering MARAFW and MARA UCB 2100 to the broader Bitcoin mining community. In my opinion, these features could become popular among Bitcoin miners since mining difficulty is expected to increase after the upcoming Bitcoin halving event this month.Marathon has 2 pricing tiers for its technology. The first tier is for $125 per unit including a lifetime license and the second tier is for $99 per unit in addition to a 2% developer fee. This means that Marathon will receive 2% of all Bitcoin mined using each miner equipped with its technology, providing an opportunity to generate recurring revenue for the lifetime of the miner. I believe the lifetime license tier is more suited for more established miners with strong liquidity while the tier with the 2% developer fee is more suited for small miners with limited cash.Marathon also unveiled a new two-phase immersion cooling system, MARA 2PIC700, that enables 2 to 4 times the power density and can reduce the space requirements for data centers by up to 75%. It can operate in temperatures ranging from -20 degrees Celsius to 50 degrees Celsius which means that it can operate in harsh climates that usually lead miners to stop operating. Marathon claims that using this system could allow miners to be overclocked by 60 to 100% and can reduce cooling costs by up to 60%.As mining costs become more critical for miners after the halving event, I expect these features to attract several suitors since these cost savings will offset the higher costs associated with the expected increase in mining difficulty. At the same time, miners using this system could operate normally during times of extremely low or high temperatures.As is, low temperatures can lead to a decrease in electrical conductivity of the silicon used in the ASIC chips which can make it difficult for the miner to reach the temperature at which it operates most efficiently. Whereas during hot weather mining rigs can suffer from thermal throttling without proper cooling which automatically reduces the rigs’ performance to cool down. Given the potential of MARAFW, MARA UCB 2100, and MARA 2PIC700, I believe Marathon is well positioned to benefit greatly from the growth of the Bitcoin mining industry since its technology could be included in most data centers in the future.Revenue Forecast & Price TargetIn my previous article, I forecasted Bitcoin to reach $100 thousand post halving based on its performance following the past 4 halving events and Marathon to produce 10,679 Bitcoin this year based on its expected hashrate. Assuming a $75 thousand average Bitcoin price for the year, I’m forecasting Marathon to generate just below $801 million in mining revenue.Mined BTC10,679Avg. BTC Price$75,000Revenue$800,925,000However, when we add the potential sales of MARAFW and MARA UCB 2100, the company could generate more revenues. Assuming the company sells 200 thousand units this year with 70% of sales for the lifetime license pricing tier and 30% for the developer fee pricing tier, I expect the company to generate $23.4 million in unit sales revenue.Price$125$99Units Sold140,00060,000Revenue$17,500,000$5,940,000As for my forecast for the recurring revenue from the 2% developer fee, I’m assuming 70% of the units will be equipped with Bitmain’s S19 Pro miner which is the most popular rig in the market and 30% of the units will be equipped with Bitmain’s T21 miner, the most advanced rig in the market. This means that 42 thousand units sold will be equipped to S19 Pro miners and 18 thousand will be equipped to T21 miners.According to Minerstat, an S19 Pro miner generates $11.42 worth of Bitcoin per day which translates to $4168 per year. Meanwhile, a T21 miner generates $19.72 worth of Bitcoin per day which translates to $7198 per year. Accordingly, the 42 thousand S19 Pro miners could generate up to $175 million per year and the 18 thousand T21 miners could generate up to $129.5 million per year. As such, Marathon could generate $3.5 million and nearly $2.6 million from the S19 Pro and the T21 rigs, respectively, thanks to the 2% developer fees.70% S19 Miners42,00030% T21 Miners18,000S19 Rev/Day$11.42S19 Rev/Year$4,168Total S19 Rev$175,068,6002% Dev Fee$3,501,372T21 Rev/Day$19.72T21 Rev/Year$7,198Total T21 Rev$129,560,4002% Dev Fee$2,591,208Total Recurring Revenue$6,092,580Based on this, I’m forecasting Marathon’s full year revenue to be more than $830.4 million.Mining Revenue$800,925,000Unit Revenue$23,440,000Recurring Revenue$6,092,580Projected Revenue$830,457,580That said, my projections don’t include any potential sales of the MARA 2PIC700 cooling system as the company hasn’t made its pricing public.According to my revenue estimate, Marathon would be trading at 5.79 times its projected sales at its current market cap of $4.8 billion compared to Riot’s (RIOT) 5.2 sales multiple and CleanSpark’s (CLSK) 8.09 sales multiple. That said, Marathon has historically traded at a premium versus its peers mainly due to its Bitcoin stash.Data by YChartsAccording to each company’s March Bitcoin production update, Marathon holds 17,381 Bitcoin while each of Riot and CleanSpark holds 8,490 and 5,021 Bitcoin, respectively, meaning that Marathon holds more Bitcoin than its peers combined. Therefore, my target P/S multiple for Marathon is 10, higher than its peers, which leads to a price target of $31.03 per share, representing 73% upside from current levels.Projected Revenue$830,457,580Market Cap$4,812,159,828P/S5.79Target P/S10Price Target$31.03Upside73%RisksAs in my previous article, the main risks to my thesis are Bitcoin’s price not increasing as expected post halving and dilution. The latter, in my opinion, represents more risk in the short term after the company filed for a new $1.5 billion shelf offering. At the current valuation, Marathon can issue more than 83.4 million new shares under the ATM program which would represent a 31.1% increase in its outstanding shares.ConclusionFollowing Marathon’s recent strategy to sell its technology to other Bitcoin miners, I remain bullish on its stock in the long-term. As is, the company’s technology has the potential to increase mining efficiency and save costs which will be critical for Bitcoin mining post halving since difficulty is expected to increase. Given that the company’s technology could become an integral part of all data centers in the future, I believe Marathon should trade at a premium compared to its peers, namely Riot and CleanSpark. As such, I’m reiterating my buy rating with a price target of $31.03, 73% higher than its current valuation.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[{"id":294582104412368,"gmtCreate":1712937876845,"gmtModify":1712937880592,"author":{"id":"3566205103165331","authorId":"3566205103165331","name":"MaeTan","avatar":"https://static.tigerbbs.com/9b4c7db40f5ec74ea810182d08212cf4","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3566205103165331","authorIdStr":"3566205103165331"},"htmlText":"Thank u for such a detailed article!","listText":"Thank u for such a detailed article!","text":"Thank u for such a detailed article!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/294582104412368","repostId":2426250898,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":294476387070008,"gmtCreate":1712911986587,"gmtModify":1712911989825,"author":{"id":"4171900329979952","authorId":"4171900329979952","name":"Barcode","avatar":"https://community-static.tradeup.com/news/6688d8fb4c2a255e3b901e79755e56df","vip":1,"hat":"https://static.tigerbbs.com/6444b4970948c1077534c593eccd6d16","crmLevel":1,"crmLevelSwitch":0,"idStr":"4171900329979952","authorIdStr":"4171900329979952"},"htmlText":"Great article, thank you 🤩&nbsp;","listText":"Great article, thank you 🤩&nbsp;","text":"Great article, thank you 🤩","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/294476387070008","repostId":2426250898,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":13,"commentSize":2,"repostSize":3,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.30.2","shortVersion":"4.30.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2426250898"}