Expansion Into AI And Energy Solutions Will Reduce Costs But Will Face Potential Challenges

Key Takeaways

• Vertical integration and energy asset ownership are projected to lower costs significantly, enhancing profitability and boosting net margins.
  
• Strategic initiatives in AI and energy solutions aim to diversify revenue streams and drive long-term growth in emerging markets.
  
• The company's transformation strategy and international expansion present execution, geopolitical, and technological risks that could impact revenue and obscure true financial performance.

Catalysts

Operates as a digital asset technology company in the United States.

• MARA's transformation into a vertically integrated energy and technology solutions provider, with a focus on owning energy assets, is expected to lower energy costs significantly. This will enhance profitability by reducing costs associated with mining operations, therefore potentially increasing net margins.
  
• By expanding its energy capacity by 300% and deploying owned power-generating assets, MARA aims to significantly lower its operational costs, extending the life of its most capital-intensive equipment and reducing maintenance CapEx. This will likely improve capital efficiency and potentially boost earnings.
  
• The development of energy solutions to optimize power consumption, storage, and distribution presents new service opportunities for data centers, AI operators, and energy markets. This diversification is expected to generate additional revenue streams, positively impacting overall revenue growth.
  
• MARA's strategic initiatives in artificial intelligence, particularly in deploying inference AI compute power using 2PIC liquid cooling technology, aim to establish new avenues for long-term revenue generation. This focus on emerging markets is projected to drive future top-line growth.
  
• MARA's strategy of acquiring energy assets and a significant portion of growth plans in international markets aims to ensure a scalable and low-cost energy base. This focus on logistical efficiency and scale is expected to sustain and enhance profitability and shareholder value over the long term.

MARA Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MARA Holdings's revenue will grow by 27.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 82.5% today to 29.7% in 3 years time.
• Analysts expect earnings to reach $407.0 million (and earnings per share of $0.47) by about March 2028, down from $541.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.8x on those 2028 earnings, up from 8.6x today. This future PE is lower than the current PE for the US Software industry at 32.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.4%, as per the Simply Wall St company report.

MARA Holdings Future Earnings Per Share Growth

Risks

• The reliance on non-GAAP financial measures, such as adjusted EBITDA and non-GAAP total margin, may obscure the true financial performance of the company, which could potentially impact net margins or earnings.
  
• The company's transformation into a vertically integrated energy and technology solutions provider requires substantial capital and operational expertise, presenting execution risks that could affect future revenue potential.
  
• MARA's plans to explore international markets and expand capacity hinge on successful partnerships with energy providers and acquisitions, introducing geopolitical and regulatory risks that could impact revenue growth.
  
• The strategy of leveraging energy assets for AI applications entails market and technological risks, particularly if demand shifts or technological advancements differ from expectations, potentially affecting future revenue streams.
  
• Increased global hash rate, particularly from emerging markets like China, and macroeconomic factors such as high global energy prices and bitcoin price fluctuations could pressure MARA's mining revenue and operational efficiency.

Valuation

• The analysts have a consensus price target of $23.292 for MARA Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $30.0, and the most bearish reporting a price target of just $14.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $407.0 million, and it would be trading on a PE ratio of 30.8x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $13.41, the analyst price target of $23.29 is 42.4% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.