MARA Holdings’ Uptrend Is Already Underway

Summary MARA Holdings posted worse-than-expected Q1 results, but recent accounting rule changes make GAAP earnings for Bitcoin miners noisy and not particularly meaningful. Despite the noisy earnings, MARA’s chart patterns and Bitcoin’s bullish price action indicate a buying opportunity, with both moving averages sloping upward. MARA’s revenue increased by 30% YoY, and its fleet efficiency is rising, but it may be losing market share in Bitcoin mining. Valuation supports a bullish case; MARA’s Bitcoin holdings are cheaply valued. Bitcoin miner MARA Holdings ( MARA ) posted first-quarter earnings on Thursday, and results were worse than expected. However, with Bitcoin miners (and those that hold Bitcoin), recent accounting rule changes make earnings reports extremely noisy and not particularly meaningful in terms of GAAP earnings. There is still much we can learn, and below we’ll dig into MARA as it attempts to breakout of its basing pattern. Based upon the valuation, the chart patterns, and the price action of Bitcoin, I’m slapping a Buy rating on MARA post-Q1. Let’s dig in. “The” bottom looks to be in We’ll start with the chart, as we always do, and in this case, I think there’s a lot of cause for optimism. MARA was in a nasty, prolonged downtrend from last November through early April, ceding about two-thirds of its value. That downtrend looks well and truly done at this point, which would mark a strong buying opportunity if that proves to be the case. StockCharts Both of the moving averages are sloping upward, and the price is above both. That is the simplest definition of an uptrend, and we’re likely in the early stages if that is the case. The PPO is in positive territory, and the RSI has entered the bullish range after months in the bearish range. During uptrends, we tend to see the RSI bottom out at roughly 50. During bearish phases, it’s the opposite, and I’ve shaded those phases as such to make it easier to see. It looks to me like we’ve got a bullish phase brewing. I cannot honestly look at this chart and draw a bearish conclusion, so I won’t. I’ve noted with some Bitcoin miners that their correlation to the price of Bitcoin isn’t actually very high. That’s not the case with MARA. StockCharts Apart from a couple of brief spikes lower, MARA generally trades quite well with Bitcoin, meaning we can look at the alt-coin OG for clues as to where MARA may go. Bitcoin again is a chart I cannot look at and draw a bearish conclusion. Whatever you think about Bitcoin, we have to follow price action, and it certainly looks bullish to me. StockCharts The PPO and RSI are flying, and the coin is threatening a test of its all-time high after a very long consolidation period. The RSI is overbought, and while the contrarian in all of us may want to say that’s a reason to sell, I placed a blue vertical line on the chart the last time this situation occurred. Becoming overbought is generally extremely bullish for stocks, cryptos, or anything else. I see the fact that the RSI is now over 70 as confirmation that Bitcoin is in a new uptrend phase. Noisy earnings I mentioned above that earnings are noisy for Bitcoin miners, and this one certainly was. But let’s first get a look at revenue and earnings estimates for MARA to get some longer-term context. Seeking Alpha Earnings are still non-existent, although what earnings actually come to will depend heavily upon Bitcoin holdings, as MARA (and everyone else) is required to revalue those holdings based upon Bitcoin price action. Q1 produced a “loss” because of that, given where Bitcoin traded as of the end of the quarter. Should Bitcoin move higher as I expect, MARA will have “earnings” on those holdings. A better look at MARA’s performance is through operating metrics, such as what we have below. Investor presentation Revenue was up 30% year over year to $214 million, slightly missing estimates. Total blocks won was up 81% year over year to 666, and MARA held 47.5k Bitcoin. The quarter saw 2.3k Bitcoin mined, which was down 8%. The company’s energized hashrate was 54.3 EH/s, which was essentially double what it was last year. That’s great, as Bitcoin mining is all about scale, but the fewer blocks won suggests MARA is ceding some market share to the rest of the field. Investor presentation Coin production was 2.5k in Q4 on 703 blocks won, while those numbers fell to 2.3k and 666, respectively, in Q1. It’s not the end of the world, but I suspect the muted reaction to earnings from market participants has something to do with this chart. MARA continues to see its fleet efficiency rise, as well as the cost of computing power come down. The company has been hard at work for some time, driving scale and efficiency, but so is everyone else. It would certainly seem MARA is at or near the point where the big chunks of efficiency and scale gains have already been seen. We shall see, but that’s how I’m reading this earnings report. What’s it worth? That’s really the big question, and based upon what I’m seeing, I think the valuation supports the bullish case I laid out in the chart review section. MARA held about $4.8 billion in Bitcoin as of the end of the quarter (at today’s price), and its market cap today is about $4.7 billion. For reference, Strategy ( MSTR ) holds about $57 billion in Bitcoin and has a market cap of $113 billion. Both have leveraged balance sheets, although MSTR’s balance sheet is leveraged to a much higher degree in my view. Strategy does nothing other than hold Bitcoin (its software business is meaningless), while MARA holds Bitcoin and mines it. Theoretically, you’d expect similar valuations, but that simply isn’t the case. We can debate the reason, but market participants have assigned MSTR high valuations while MARA and others don’t get those valuations for doing almost the same thing. I won’t pretend to know the answer, but it is what it is. Point being, I’m not going to say that MSTR’s multiple of ~2X its Bitcoin holdings should apply to MARA, which is currently at about half that valuation. I do think the exposure to Bitcoin MARA offers is much cheaper than the exposure MSTR offers right now, as MARA’s operations, as far as I can tell, are being valued at nothing. With all of this in mind, the risks of owning MARA are still significant, as Bitcoin miners are inherently volatile. If MARA is indeed losing market share, things may get worse over time as blocks won falls. It’s possible MARA regains that market share, but it’s possible it doesn’t. It’s also possible the market never values MARA’s Bitcoin holdings at more than 1:1, which is essentially where it is now. If that’s the case, you’re probably better off with a Bitcoin ETF or the coin itself. But on the back of Bitcoin moving extremely bullishly and MARA’s chart doing the same, I am optimistic over the medium term here for MARA. I would not want to own the stock under the 50-day moving average, currently just over $13, as that would invalidate my bullish thesis. Still, I’m putting a Buy on it after Q1 earnings.

Source: Seeking Alpha