Summary MARA’s market cap is nearly matched by its $5.42 billion Bitcoin holdings, meaning investors value the mining business at a discount. MARA’s mining operation, adds more value annually in Bitcoin to the balance sheet than what the market appears to be valuing it. Investors can capture upside through new BTC mined monthly, valuation expansion in the mining business, or a BTC rally boosting existing BTC holdings. I have lately been quite interested in Bitcoin ( BTC-USD ) Treasury Companies, both in terms of how these companies can obtain fiat capital on favorable terms to generate shareholder value, and in the potential opportunities to buy many of them at a discount relative to their BTC holdings and underlying operations. Regarding the first category, I have recently covered Strategy ( MSTR ), and each of its preferreds STRF ( STRF ), STRK ( STRK ), and, most recently, STRD ( STRD ), here , here , here , and here , respectively. Regarding the second category, back in March, I wrote how one can buy Semler Scientific's ( SMLR ) operations at a great discount relative to its BTC holdings. By the way, I think that opportunity is even greater now, given BTC's rally against SMLR's underperformance. Today, I am writing about an opportunity like the latter, as MARA Holdings ( MARA ) appears to trade at levels that allow investors to essentially acquire its mining business "for free." The Bitcoin Holdings vs. MARA's Market Cap As of writing this article, MARA's market cap sits around $5.8 billion, based on a share price of roughly $16.52 and about 352 million shares outstanding. In the meantime, the company holds 49,375 Bitcoin, valued at approximately $5.42 billion, with BTC flirting with $110,000 per coin. MARA BTC Holdings (BitcoinTreasuries.NET) If we do the math, that's about $15.41 in Bitcoin per share. Compare that to the stock's $16.52 price, and you're basically buying MARA's entire operating business (data centers, proprietary tech, etc.) for just about $1.1 per share, or $387 million. But wait! MARA has $2.44 billion in net debt (including the zero-coupon convertible notes), and it also has $1.56 billion in property and equipment, so by adding the differences as a liability, the market is valuing the mining business at just about $850 million. I will explain why this implies a discount in a moment. The valuation discount has widened as MARA's stock hasn't kept pace with BTC's rally. While Bitcoin has gradually gained in recent months, MARA's share price has more or less moved sideways. BTC is up ~58% over the past year, all while MARA stock is down ~15% over the same period. BTC vs. MARA 1 Year Return (Koyfin) But why? The Management Discount: Why Investors Are Skeptical From following the stock regularly and reading the comments of other online investors, MARA's discount appears to stem from a doubt about management. Investors are essentially slapping a "management discount" on MARA, due to doubts about its track record, and it all goes back quite some time. You may remember, for instance, that in 2022, power outages at its Montana facility and delays in scaling mining capacity were a major source of frustration for shareholders. On top of that, the $2 billion stock offering in March wasn't exactly welcomed by investors due to earlier fears of dilution, while the company's pivot into AI infrastructure raised questions about management's focus. And these are valid arguments. If MARA is now a BTC treasury company and raising money MSTR-like, why are they suddenly saying they want to explore becoming a base layer infrastructure provider for AI and high-performance computing? Adding fuel to the fire, some investors have called out CEO Fred Thiel, pointing to his vague communication. For example, in the Q1 earnings call , he dodged specifics on AI strategy. This has led the market to undervalue MARA's mining operations, pricing the stock as if its Bitcoin stash is pretty much its only asset. The Mining Business Is Worth... The BTC However, I believe the mining business is not worthless, or at least the mere $850 million implied book value (for MARA to trade at NAV). This is because of all the BTC accumulation that the mining operations deliver, which is profitable for the company. Last quarter, MARA mined 2,286 Bitcoin, down 19% from 2,811 the year before due to the halving and increased network difficulty. At a direct energy cost of $35,728 as of Q1 (ex-depreciation), MARA can make roughly $74,300 per BTC at current BTC prices. This is about $170 million in value creation in a single quarter. Note that MARA is actually going to post a loss in this scenario, as it incurs the expenses but holds the BTC, but book value-wise, it has created actual value. Last month, MARA's mining produced 950 Bitcoin, a 35% jump from April , thanks to a record 282 blocks won and a 58.3 EH/s hashrate. At $110,000 per coin, those 950 Bitcoins are worth $104.5 million. With a $35,728 cost per Bitcoin, each coin adds $74,300 in book value, or $71 million for the month, or $852 million annualized. I believe the market doesn't understand this and merely sees MARA's GAAP losses. You can also see how the mining business seems extremely cheaply priced, given the value MARA can create via its BTC accumulation strategy from its mining business. Within a year, the mined BTC minus the expenses incurred can top what the market is currently valuing the mining business. Even if you believe the balance sheet assets do not reflect real values on the equipment side, and the market is actually valuing the mining business at $1 billion to $1.5 billion, you are still getting it about 1X to 2X earnings at current Bitcoin price levels. A Significant Risk To Consider The most notable risk to MARA's investment case hinges on the price of BTC, which has a wild history. BTC has tanked by over 80% from its highs more than once. So, despite growing institutional adoption that could prevent such a major drop today, another crash could make mining unprofitable if Bitcoin falls below MARA's cost per coin, slashing balance sheet value and making its core operations effectively worthless for as long as mining remains unprofitable. Along with MARA's $2.44 billion in net debt, this could hammer the stock. The Bottom Line Overall, I would say it's tough to be bearish on MARA stock these days. You're essentially buying $5.42 billion in Bitcoin for $5.8 billion and getting a mining business that added $852 million in annualized Bitcoin value to the balance sheet for just $850 million. Of course, the annualized figure can change from month to month, and the mining business could be worth anywhere between $0.50 and $1.5 billion at current share prices based on how much you think the balance sheet assets are actually worth. Still, the idea is the same, as we are talking about a low single-digit multiple on that business at current BTC prices. In the meantime, if you are actually long BTC, you have another reason to hold the stock, even if the mining discount doesn't close. Since the stock is not trading far from its BTC holdings, you are holding the BTC and essentially getting a call option that the market will value the mining business above today's valuation. Lastly, regarding the potential pivot toward AI, you have to trust that the management will indeed allocate power only if that is more accretive than actually mining BTC. It's all speculative to comment on that today, but if we assume that management doesn't mess up here, nothing fundamentally changes in my thesis.
