Shares of MARA Holdings (NASDAQ: MARA) Soared as Much as 19.3%

Shares of MARA Holdings (NASDAQ: MARA), formerly known as Marathon Digital Holdings, soared as much as 19.3%

Shares of MARA (NASDAQ:MARA)Holdings soared as much as 19.3% on Thursday morning, following a blowout fourth-quarter earnings report that saw the company massively beat analysts' estimates and announce a large-scale purchase of Bitcoins (CRYPTO: BTC). By midday, the stock settled with a 9.2% gain.

Despite this surge, it’s worth noting that MARA remains 55% lower over the past year, highlighting the extreme volatility investors can expect from Bitcoin mining stocks.

Breaking Down MARA’s Q4 Earnings

As we previously covered, analysts had lowered their expectations for MARA’s earnings. The company faced a triple downgrade from two analysts, who slashed their price targets and expressed concerns over the company’s high debt levels and the recent Bitcoin price drop.

Following this bleak outlook, analysts polled by Bloomberg were anticipating a net loss of $0.16 per share on revenue of about $181 million.

However, MARA managed to surprise everyone by reporting adjusted earnings of $1.24 per share, more than double the prior estimate of $0.61 per share. The company’s revenue also came in significantly higher than expected, increasing 37% year-over-year to $214 million, compared to the projections of $181 million.

A significant portion of MARA’s revenue is derived directly from its Bitcoin holdings and price changes. In the fourth quarter, MARA mined 2,492 Bitcoins at an average cost of $52,035 per coin. Additionally, the company purchased 15,574 Bitcoins on the open market at an average cost of $98,531 per coin.

The company’s earnings report also revealed that it is diversifying its revenue streams beyond Bitcoin mining. MARA generates revenue from two main sources:

This diversification is crucial, especially in bear markets. As we’ve highlighted before, if the price of Bitcoin drops, it can take a massive toll on MARA’s earnings due to the company’s large-scale Bitcoin holdings. This factor, in particular, makes the company’s business model inherently risky.

As smaller and less efficient miners are typically forced out of the market, MARA’s share of global Bitcoin mining rewards increased to 5.6% in Q4, up from 4.8% in the third quarter and 4.4% in Q4 2023. While this trend is promising, it also means that MARA is heavily reliant on Bitcoin price appreciation to remain profitable.

To fuel its aggressive Bitcoin accumulation strategy, MARA took on substantial long-term debt in Q4. This move could pay off handsomely if Bitcoin prices rise, but it also exposes the company to significant downside risk if the cryptocurrency market experiences another prolonged downturn.

Moreover, February saw a steep price drop for Bitcoin, which could have implications for upcoming earnings reports from Bitcoin miners like MARA and (NASDAQ:CIVI) Civitas. This factor, in particular, makes MARA’s short-term outlook uncertain.

Ultimately, MARA’s business model is characterized by high risk and high reward. For investors with a high tolerance for volatility, MARA’s potential for significant gains could be attractive. However, those who prefer lower-risk investments or are sensitive to market fluctuations might be better served by exploring other investment opportunities.