Stock Analysis

We Think Marathon Digital Holdings (NASDAQ:MARA) Can Easily Afford To Drive Business Growth

  •  Updated
NasdaqCM:MARA
Source: Shutterstock

We can readily understand why investors are attracted to unprofitable companies. By way of example, Marathon Digital Holdings (NASDAQ:MARA) has seen its share price rise 1,697% over the last year, delighting many shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given its strong share price performance, we think it's worthwhile for Marathon Digital Holdings shareholders to consider whether its cash burn is concerning. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Marathon Digital Holdings

How Long Is Marathon Digital Holdings' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2021, Marathon Digital Holdings had cash of US$338m and no debt. Importantly, its cash burn was US$214m over the trailing twelve months. That means it had a cash runway of around 19 months as of June 2021. Importantly, though, analysts think that Marathon Digital Holdings will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
NasdaqCM:MARA Debt to Equity History September 14th 2021

How Well Is Marathon Digital Holdings Growing?

It was quite stunning to see that Marathon Digital Holdings increased its cash burn by 2,531% over the last year. But shareholders are no doubt taking some confidence from the rockstar revenue growth of 2,740% during that same year. In light of the data above, we're fairly sanguine about the business growth trajectory. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Easily Can Marathon Digital Holdings Raise Cash?

Even though it seems like Marathon Digital Holdings is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Marathon Digital Holdings has a market capitalisation of US$3.5b and burnt through US$214m last year, which is 6.0% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is Marathon Digital Holdings' Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Marathon Digital Holdings is burning through its cash. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. While we must concede that its increasing cash burn is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. On another note, Marathon Digital Holdings has 2 warning signs (and 1 which is potentially serious) we think you should know about.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

When trading Marathon Digital Holdings or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


What are the risks and opportunities for Marathon Digital Holdings?

Marathon Digital Holdings, Inc. operates as a digital asset technology company that mines cryptocurrencies with a focus on the blockchain ecosystem and the generation of digital assets in United States.

View Full Analysis

Rewards

  • Earnings are forecast to grow 98.97% per year

Risks

  • Highly volatile share price over the past 3 months

  • Shareholders have been diluted in the past year

  • Has less than 1 year of cash runway

View all Risks and Rewards

Share Price

Market Cap

1Y Return

View Company Report

Further research on
Marathon Digital Holdings

ValuationFinancial HealthInsider TradingManagement Team