Summary Marathon Digital (MARA) posted a massive EPS beat in Q2, driven by fair value gains on its expanding Bitcoin holdings. Despite muted market reaction, MARA’s vertically integrated, global business model strengthens its cost efficiency and operational resilience. The company’s BTC stash, acquired at a cost basis well below current prices, positions it for substantial upside if Bitcoin rallies further. Q3 is already shaping up well, with Bitcoin hitting all-time highs, likely setting up MARA for another mark-to-market accounting tailwind. MARA Holdings (NASDAQ: MARA ) Q2 is an example of when strong execution and long-term strategic positioning begins to translate into meaningful financials. Bitcoin's ( BTC-USD ) price was also an important tailwind for the quarter’s performance, driving the headline $808.2 million net profit. Q2 results beat the Street’s consensus on both the top and bottom lines. Revenue grew by 64% YoY to $238.5 million, and the bottom line flipped positive from a net loss per share of $0.72 a year ago to $1.84 earnings per share in Q2. While Bitcoin prices were a tailwind for the stellar financial performance, MARA’s operational execution and scaled efficiencies from owned infrastructure played an equally important role. MARA Holdings There were impressive increases in financial numbers and operational metrics across the board for MARA in Q2, which all contributed to the stellar top line and bottom line beats. Adjusted EBITDA saw an impressive 1,093% increase YoY to $1.2 billion - thanks to fair value accounting. The surge was primarily driven by the unrealized gain on MARA’s Bitcoin holdings (about $1.2 billion), as Bitcoin appreciated to $107k by the end of Q2. Strong operational execution and MARA’s "Bitcoin to Work" strategy, which entails utilizing a portion of the Bitcoin holdings through lending, also contributed to the improved profitability. Bitcoin to work strategy (MARA Holdings) MARA operations has scaled significantly and now thrives comfortably post halving, as Bitcoin blocks won in Q2 were up 52% YoY, from 457 blocks a year ago to 694 blocks in Q2. More blocks equals more Bitcoin mined. Beyond the tailwind from Bitcoin price surge, this is one of the operational improvements that contributed to the improved top line in Q2. Historically, MARA has consistently demonstrated efforts to be a cost-effective Bitcoin miner. MARA also maintained continuous improvement in operational efficiency, with fleet efficiency improving by 26% YoY to 18.3 Joules per Terahash (J/Th), and cost per petahash per day declined by 24% YoY in Q2. Fleet and hashrate improvement (MARA Holdings) MARA’s liquidity and BTC Holdings also improved. BTC Holdings increased 170% YoY to 49,951 BTC as of Q2 end, rising from 18,488 at the end of Q2 last year. MARA has embarked on an aggressive accumulation of BTC either through issuing debt to fund purchases or stacking its mined BTC on its balance sheet. Though the company management doesn't want to be seen as a pure BTC treasury company, the company's BTC holding, currently over 50,000 BTC, is so substantial that it can't be ignored when valuing MARA. Now while some people may see us as a bitcoin treasury company, given the size of our bitcoin holdings we don't consider ourselves as one. We're invaders, builders and operators. We're actively managing our bitcoin holdings to create long-term value for shareholders. - excerpt from the Q2 earnings call Liquidity (comprising cash and BTC holdings of cash & cash equivalents of $109.5 million, digital assets of $3.69 billion, and digital assets - receivable, net of $1.65 billion) was total of ~$5.4 billion at the end of Q2, which has even been further boosted by the additional $950 million raised recently. That is enough dry powder for future expansion, strategic investments, and navigating market volatility. balance sheet (MARA Holdings) With all the impressive financial and operational metrics highlighted so far, it is worth mentioning that MARA’s expansion has come at a cost for shareholders. Diluted share outstanding now stands at 491.3 million (if we include convertible notes, warrants, and unvested RSU/PSU). Diluted share outstanding was about 278.67 million a year ago. Which implies a heavy ~75% dilution YoY. MARA’s Vertical Integration Goes Global Every miner still in business finds ways to expand infrastructure. It is the norm of the business. They procure energy and hashrate to increase capacity and throughout. That's the only way to keep up with increasing Bitcoin network difficulty and stay competitive for winning block rewards. But MARA is currently doing this with a twist of strategic depth through vertical and geographical integration. It's also not a new trend for Bitcoin miners to strategically deploy facilities across geographical locations in a bid to secure cheaper energy and to spread risk. However, MARA’s current geographical expansion entails a strategy that is geared towards embedding itself deeper into local energy and compute ecosystems, beyond just running facilities in these locations. MARA’s ability to scale operations on a vertically integrated level has been one of the operational attractions for me over the years. In the past, that included proprietary immersion cooling solutions and custom-built electricity optimization software that were designed and deployed in-house. While the Q2 results contain a handful of bright spots, the vertical and geographic integration of MARA are the biggest standouts for me, because they show a shift from being just a mining firm to a global-scale infrastructure operator with deep control over energy and compute. If execution goes well, this comes with largely untapped business opportunities. Insights from the Q2 earnings call show that MARA's vertical integration strategy is now moving beyond Bitcoin mining and into HPC and AI compute infrastructure, and executing on a level that spans geographical diversification and full-stack infrastructure control. In Q2, that expansion meant investing further down the stack (and across borders) in the infrastructure and energy systems that will support the long-term pivot toward HPC and AI inference workloads. And that progress in Q2 included scaling flexible-load data centers, building grid-responsive energy platforms, and establishing a global footprint to secure access to subsidized or underutilized energy. Beyond performance, we continued to invest in the infrastructure that underpins our business from scaling low-cost flexible load data centers to exploring international opportunities in regions with abundant energy and growing demand for sovereign compute. This quarter, in support of our strategy to support the load balancing needs of AI HPC data centers, we announced strategic partnerships with TAE Power solutions backed by Google and Pado AI backed by LG. Frederick Thiel, CEO, MARA Holdings, during the Q2 earnings call Importantly, MARA is not approaching this vertical integration in HPC blindly. Partnerships with ventures like TAE Power Solutions (backed by Google) with whom MARA is building real-time responsive load management system to meet energy demands from the AI and HPC data center sector, and PADO AI (backed by LG) with whom they are building AI-native tools for intelligent data center load balancing, show a clear intention to codevelop grid-aware load balancing platforms that go beyond selling compute capacity, but integrate compute directly into the grid itself. This tight coupling between compute infrastructure and energy strategy is likely to become MARA’s signature competitive edge over other miners in HPC and AI compute. we've been laying the ground work for a regional headquarters in Saudi Arabia, and we have established entity in France as a European headquarters. We believe this approach will provide us access to low-cost energy by partnering with energy companies and infrastructure capital providers to lower our capital commitments. Through these efforts, we built a global growth pipeline exceeding 3 gigawatts, positioning us to scale efficiently across key markets. When you put it all together, as inference increasingly becomes the dominant cost center in AI, control over geography, latency and energy cost becomes a strategic advantage. We'll continue to invest here to ensure MARA is well positioned to meet this demand. We're excited to host our first ever Investor Day this fall. - Frederick Thiel, CEO, MARA Holdings, during the Q2 earnings call And in MARA’s geographical integration strategy, MARA is setting up regional HQs and forming energy company partnerships to secure low-cost power globally, while minimizing upfront capital through partner co-investment. And by this approach MARA is embedding themselves into the local energy and regulatory stack across markets, and rather than buying power on the market, they’re becoming part of the energy sourcing and deal structuring process. I think the synergy of both vertical and geographic integration is a long-term competitive moat that will potentially give MARA lots of geographic control over where and how it plugs into the global compute economy, with latency optimization, and energy cost arbitrage - all key components to scaling AI workloads. The ultimate payoff for this vertical and geographic integration approach is that when this is fully operationalized, there is high potential for MARA to see energy procurement and compute deployment cycles optimized, which will potentially translate to lower cost of compute per workload, and boost financials through improved margins and capital efficiency, ultimately creating long-term shareholders' value. Valuation Gets More Attractive MARA’s huge EPS beat naturally makes MARA’s valuation attractive. And I think the market reaction to the headline bottom line beat has been muted because a large portion of the upside came from unrealized gains or paper profits tied to fair value accounting of its Bitcoin holdings. Data by YCharts I, however, think that the case for MARA is strengthening as Bitcoin momentum reaccelerates. A further surge would mean MARA’s cost basis for its accumulated BTC becomes increasingly favorable. Though it is difficult to calculate a finite figure for the cost basis of MARA’s Bitcoin holdings as they include both BTC purchased on the open market and BTC mined from operations, spanning several quarters at several prices, a rough estimate puts the cost basis way below $100,000, if we go by the notable purchases made since last year. In August last year, 4,144 BTC worth $249 million was purchased at an average price of $59,500 , following a $300 million raise. Then in November, 6,474 BTC was purchased at an average price of $95,0000, following a $1 billion convertible note offering. Then following another convertible note offering last December, MARA purchased 15,574 BTC at an average of $98,500 per BTC. If BTC continues its upward surge, MARA’s mark to market under fair value accounting would result in multi-billion dollar mark-up to equity and potentially another blowout earnings quarter. Even if fair value gains are dismissed today, the ability to convert paper gains into capital, or generate yield from these assets, sets up MARA for a fundamental revaluation. At BTC price of, say, $120k to $150k (which is just about 2% to 20% away from current price of $118k), MARA would have an advantaged cost basis, potentially giving it multiple levers for an upside. Q3 is gearing up to be another great quarter for MARA, considering the fact that BTC has already hit a new all time high in Q3, and MARA’s mark to market fair value accounting will likely be coming with a higher BTC figure compared to Q2. Risks and Takeaway MARA’s balance sheet is now more exposed to BTC than ever. And what has turned out to be an impressive quarter in Q2 could as well easily turn out to be a dismal one if BTC sees significant price decline. As MARA’s own management puts it in the Q2 earnings call: Regarding the current price of bitcoin, our view is that things feel a little frothy at the moment. While there is persistent demand for bitcoin, this is balanced by an ample supply owing to long-term holders taking profits from bitcoin held in some cases since the earliest years of bitcoin's infancy. Supply is currently being absorbed relatively well. But if the buying demand were to subside, we could see downward pressure as sellers attempt to lock in gains at these high price points. With our recent convertible notes offering, we have significantly bolstered our balance sheet to have the flexibility to act across a range of strategic priorities, including opportunistic bitcoin purchases debt repurchase, M&A and general corporate purposes. - Frederick Thiel, CEO, MARA Holdings, during the Q2 earnings call One of the most important takeaways from Q2 earnings is that beyond the exposure to BTC and the upside it offers if BTC keeps up momentum, MARA is now vertically integrating not just to mine Bitcoin better, but to own more of the value chain across digital energy, compute infrastructure, and AI markets. Based on how this strategy is well executed, this potentially opens up undervalued opportunities for MARA, which the market may be missing currently.
