Tactical Data Center Expansion And NGON Partnership Will Boost Earnings And Net Margins

Key Takeaways

• MARA Holdings' acquisition strategy and partnerships focus on cost efficiencies, potentially improving net margins via cheaper electricity and data center valuations.
  
• Bitcoin holdings provide financial flexibility, enabling diversified income streams and supporting earnings through yield generation and collateralization.
  
• Dependence on bitcoin price trends, energy dynamics, and non-GAAP measures poses risks to MARA Holdings' financial stability and investor perception.

Catalysts

Operates as a digital asset technology company that mines digital assets with a focus on the bitcoin ecosystem in United States.

• MARA Holdings anticipates adding approximately 372 megawatts of compute capacity through data centers by the end of 2025, expanding their market presence and potentially increasing revenue from operations.
  
• The acquisition strategy of MARA Holdings focuses on securing assets at attractive valuations, notably acquiring data centers at about $270,000 per megawatt, indicating potential for improved net margins through cost efficiencies in acquisitions.
  
• The partnership with NGON to generate electricity at significantly lower costs (~$0.01 per kilowatt hour) compared to market prices (~$0.04 per kilowatt hour) is expected to reduce operating expenses, potentially increasing net margins.
  
• MARA’s significant holdings of bitcoin (~27,000 BTC) offer financial flexibility, including opportunities to generate yield and collateralize holdings, supporting earnings through diversified income streams.
  
• MARA's strategy to leverage and enhance its proprietary 2PIC immersion technology for miners is likely to lower power consumption and operational costs, positively impacting net margins and earnings.

MARA Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MARA Holdings's revenue will grow by 36.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 27.5% today to 21.6% in 3 years time.
• Analysts expect earnings to reach $329.5 million (and earnings per share of $0.92) by about January 2028, up from $164.6 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 36.5x on those 2028 earnings, down from 37.3x today. This future PE is lower than the current PE for the US Software industry at 38.4x.
• Analysts expect the number of shares outstanding to grow by 3.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.19%, as per the Simply Wall St company report.

MARA Holdings Future Earnings Per Share Growth

Risks

• There are significant risks and uncertainties associated with MARA Holdings’ forward-looking statements, which caution investors about placing undue reliance on projections regarding future growth plans and financial performance, potentially impacting future earnings.
  
• The focus on non-GAAP financial measures, such as adjusted EBITDA and non-GAAP total margin, rather than traditional GAAP measures might obscure true financial performance, affecting investor's views on net margins.
  
• The acquisition and development of data centers are subject to execution risks such as delays or cost overruns, which could adversely affect operational efficiency and future revenue growth.
  
• MARA’s strategic objectives rely heavily on assumptions about bitcoin price trends and energy market dynamics, where fluctuations could impact revenue and profitability.
  
• The company’s substantial bitcoin holdings make it exposed to market volatility, which could affect asset valuation on the balance sheet and impact overall earnings stability.

Valuation

• The analysts have a consensus price target of $27.33 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 $45.0, and the most bearish reporting a price target of just $21.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $329.5 million, and it would be trading on a PE ratio of 36.5x, assuming you use a discount rate of 7.2%.
• Given the current share price of $19.07, the analyst's price target of $27.33 is 30.2% higher.
• 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.