MARA Holdings: Should Shorts Be Worried? (Rating Upgrade)

Summary MARA Holdings has aggressively bought Bitcoin, raising over $2.1 billion through zero-interest convertible notes, significantly increasing its BTC-backing per share. The company mined 2,514 BTC in Q4-24, with potential annualized revenue of $1 billion at a $100k BTC price. MARA's high short interest and reliance on Bitcoin price increase create a potential short squeeze setup should BTC's price generate a new high. While MARA's strategy mimics MicroStrategy's, its success likely hinges on perpetual Bitcoin appreciation and investor appetite for share price volatility. In the three months since my prior Seeking Alpha article covering MARA Holdings ( MARA ) was published at just under $18 per share, the company has seen the stock price explode up near $30 and fall back down under $18 again - all while it has closed two separate rounds of convertible senior notes at zero percent. Far from the only company jumping on the bandwagon, MARA has been on a Bitcoin ( BTC-USD ) buying spree reminiscent of what we've seen from Michael Saylor and MicroStrategy ( MSTR ) in recent months. In this update, we'll look at MARA's aggressive Bitcoin buying in Q4-24, the company's mining production, and the seemingly increasing potential for a short squeeze in MARA shares. The Saylor Way MicroStrategy co-founder and Executive Chairman Michael Saylor has created a monster. Borrowing dollars at low or even zero-interest to buy an asset that has generally appreciated in nominal dollars during its 16-year existence is just one part of the game. The real product that has made MSTR's moonshot such an interesting story is that the company is basically selling large investors price volatility in its common stock shares. So far, it has created a feedback loop that is equal parts fascinating and potentially dangerous, from where I sit. Zero-interest or not, levering up to buy an asset that can fall in price by as much as 10% in a matter of just a few minutes is a bold treasury strategy and that is likely even more true for a Bitcoin miner like MARA. The underlying business that MARA has operated since I've been covering the stock is Bitcoin mining. I doubt I need to explain this, but typically miners are in the business of selling Bitcoin to cover things like operating costs, capex, and SG&A. In a theoretically efficient operation, miners should be able to pay all-in costs with mined coins and still have some production left over to 'stack sats' for long term shareholder value and for funding growth. Bitcoin Treasury Additions 2024 Mined 9,457 Purchased 22,065 Total 31,522 Source: MARA Holdings In practice, growth and operations have generally been funded through capital raises and shareholder dilution. The economics of mining are so challenging long term, that we've even seen mining companies shift to buying Bitcoin in addition to the coins that they mine. MARA bought more than twice as many Bitcoins as it mined in 2024 and most of those purchases came in the last several weeks of the year with roughly 15k BTC bought between late November and the end of the year: MARA Holdings BTC Stack (BitcoinTreasuries) As mentioned earlier, the funding from those purchases has come through convertible note offerings. Going back to the summer, MARA has closed three such offerings: Convertible Notes Rate Maturity Raised August 2024 2.125% 2031 $300 million November 2024 0% 2030 $1 billion December 2024 0% 2031 $850 million Source: MARA Holdings Over the course of just four months, MARA Holdings has raised over $2.1 billion through convertible notes. On paper, this has been highly beneficial to shareholders when judging purely by the Bitcoin-backing of the company's shares: MARA Sats Per Share (MARA, Author's Calculations) At the end of December, MARA's 339.4 million common shares were supported by just under 44.9k BTC. The math on that is 13,227 'sats per share' backing MARA shares. This is the largest sat-backing MARA shares have had in at least the last three years. Even when adjusting for the company's assumed dilution through convertible notes, the BTC-backing per share has increased year over year. MARA Holdings 12/31/2023 9/30/2024 12/31/2024 Bitcoin Holdings 15,174 26,747 44,893 Assumed FD Shares Outstanding (000s) 254,888 341,932 463,400 BTC per 1,000 Shares 0.0595 0.0782 0.0969 Source: MARA Holdings, Author's Calculation Using the assumed fully diluted shares outstanding, there is 0.0969 BTC per FD MARA share - dubbed the 62.7% 'BTC yield.' This gives MARA a $9.20 fully diluted share value in Bitcoin alone at $95k BTC. At the non-diluted 339.4 million shares outstanding figure, MARA's 13,227 sats/share give MARA shares a $12.53 BTC-backing currently. Which could be interpreted as the market assigning just a $5.33 per share valuation to the company's actual mining business if one assumes the BTC purchased through convertibles won't have to be liquidated to meet the company's obligations. Q4 Production During the month of December, MARA mined 890 BTC on an energized hash rate of 53.2 EH/s. That final month take gave MARA 2,514 BTC mined during the quarter: Monthly Production (MARA, Author's Chart) For the three month period, MARA mined an average of 838 BTC per month. At a $100k BTC price, MARA averaged slightly over $1 billion in annualized revenue from mining BTC. Though the ceiling for this company may be much higher. For instance, if we take the view that BTC will hit $200k this cycle, MARA's Q4 mine production implies an annualized revenue rate of $2 billion. That puts the current price of MARA at just 3x forward sales. And again, the share value backing of MARA through just its Bitcoin holdings would put a floor bid under MARA of roughly $25 at that Bitcoin valuation - a nearly 40% premium over current shares. To be clear, this is just guessing. I'm not even sure BTC will get to $200k per coin. But it may not even have to given the potential squeeze dynamics in MARA shares if BTC simply breaks out to a new high. Short Squeeze Setup? Of the top 5 US-listed Bitcoin mining equities, no company has a higher percentage of shares outstanding sold short than MARA Holdings: Data by YCharts At 23%, the only mining company that even comes close to this metric is CleanSpark ( CLSK ). How does this short interest compare with MSTR? Data by YCharts Consider that MARA and MSTR have had a fairly close correlation in percent of shares outstanding sold short going back to 2021. That changed in 2024 with MARA heading higher and MSTR's short percent dropping. Now, MARA Holdings is utilizing the MSTR Treasury management strategy. Will it have the same impact on those betting against the stock? Time will tell. Risks The obvious risk to me is MARA has made itself even more reliant on the success of Bitcoin than it already was. Unlike MicroStrategy, which operates a separate software business, MARA's core business is exposed to Bitcoin prices - giving the company's stock price no real insulation should the price of BTC go down. And the economics of that business are dubious long term. Mining is capital intensive and MARA's estimated break-even price is higher than current Bitcoin levels. Furthermore, miners buying BTC to add to Treasury stacks is not a new concept. Bitfarms ( BITF ) did something similar shortly after the market top in November 2021. Following the collapse of Terra in May 2022, Bitfarms quickly sold down its BTC Treasury stack from over 6,000 BTC in May down to about 400 by December. The company's share price ended 2022 96% off its stock price high from November 2021. Likewise, borrowing to maximize returns from what may feel like a winning strategy has been seen before as well. Back before it was converted to a spot ETF, 3AC used debt to play the Grayscale Bitcoin Trust ETF ( GBTC ) NAV rate arbitrage and went bust when the NAV rate went deeply negative. The point is, there are no sure things. Closing Summary For Bitcoiners, it's hard to argue with MARA implementing the MicroStrategy ' infinite money ' strategy. MARA has essentially given itself a floor price through its Bitcoin holdings and was able to raise nearly $2 billion through zero interest convertibles. If you believe Bitcoin will continue to appreciate in price, taking a shot on MARA might not be that bad of a bet, in my opinion. But this is all reliant on the price of Bitcoin increasing essentially in perpetuity and investors' willingness to buy share price volatility through convertible notes. I'm not sure either can continue forever. But for now, I think it's a tough trade to fade.