Riot Platforms (REVOLT 8.91%) And Marathon Digital (MARA 7.98%) are two of the greatest pure games Bitcoin (BTC 0.88%) miners in America. Both stocks hit all-time highs in 2021 as Bitcoin’s price soared, but they have stumbled over the past two years as rising interest rates crushed the cryptocurrency market.
I compared these two stocks last June and hailed Riot as a better buy as the company faced less regulatory headwinds and had a healthier balance sheet. Riot’s stock is up nearly 150% since then, while Marathon’s stock is up about 80%. Let’s see why Riot outperformed Marathon – and if it’s still the better choice in the bitcoin market.
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Similar business models, similar challenges
Riot and Marathon were not originally Bitcoin miners. Riot was once a medical device manufacturer called Bioptix, while Marathon was originally a patent holding company. Both companies abandoned their original business models, ordered thousands of top-tier Antminers from Bitmain, and rebranded themselves as Bitcoin-only miners.
Riot had deployed 95,904 miners by the end of June, giving the company a total hash rate capacity (or the overall efficiency of its mining operations) of 10.7 EH/s (exahashes per second). Just over a year ago, the company claimed it could deploy 120,150 miners by January 2023 to generate a total hash rate capacity of 12.8 EH/s.
Marathon had 149,900 miners as of July 1st with a total hash rate capacity of 17.7 EH/s. However, this also missed its own goal of using 199,000 miners by “early 2023” in order to generate a total hash rate capacity of 23.3 EH/s.
Riot and Marathon both took a more conservative approach to expanding their mining fleets, as rising interest rates made bitcoin and bitcoin-related stocks significantly less attractive. Adverse weather conditions have also pushed up energy prices over the past few months, forcing both companies to cut back on mining bitcoin — despite the bitcoin price rising 40% over the past 12 months. From May to June, Riot and Marathon mined 32% and 21% less bitcoin, respectively, month-on-month.
After initially hoarding their mined bitcoins, both companies began liquidating some of them last year to raise fresh cash. In June, Riot sold 400 of the 460 bitcoins mined, while Marathon sold 700 of its 979 bitcoins mined.
At the end of Q1 2023, Riot had $129 million in unrestricted cash and $202 million in bitcoin on its balance sheet, while Marathon had $114 million in unrestricted cash and approximately $380 million in bitcoin .
Marathon still has the same old weaknesses
Riot and Marathon appear to be fundamentally similar, but only Marathon is under active investigation by the Securities and Exchange Commission (SEC). In 2021, the SEC began investigating Marathon’s joint venture with Beowulf Energy, formed to secure cheap energy rates for its data centers in Hardin, Montana. The SEC objected to Marathon using its own restricted stock instead of cash to fund this deal. In May of this year, Marathon announced that it had received another SEC subpoena related to this joint venture. If Marathon is forced to end his partnership with Beowulf, his energy costs could skyrocket.
Marathon also ended its most recent quarter with a debt-to-equity ratio of 1.3, largely due to the $733 million of convertible debt on its balance sheet, while Riot had a much lower ratio of 0.1. That higher leverage could make Marathon less attractive in this volatile market.
Both companies posted heavy losses last year
Riot’s revenue grew from $12 million in 2020 to $213 million in 2021, then grew another 22% to $259 million in 2022. However, its net loss increased from $14 million in 2020 to $15 million in 2021 and then soared to $510 million as a cryptocurrency Winter dragged on and energy costs soared. However, for 2023, analysts expect sales to increase 46% to $379 million while net loss slips to $146 million.
Marathon’s revenue grew from $4 million in 2020 to $159 million in 2021, but fell 26% to $118 million in 2022. Net loss tripled from $10 million in 2020 to $37 million in 2021, then widened to a whopping $687 million in 2022. On the bright side, analysts expect the Marathon revenue to more than triple to $424 million in 2023 as the company commissions two new plants and establishes a new joint venture in Abu Dhabi. Net income is also expected to be $33 million.
This ambitious expansion — funded by much of the cash the company has raised from its recent convertible bond issuance — could offset many of the weaknesses mentioned above.
The reviews and the verdict
Riot trades at seven times this year’s sales, while Marathon trades at a lower ratio of 6. I’d rather buy Bitcoin outright than one of those capital-intensive Bitcoin miners right now, but Marathon is still a better choice than Riot for four simple reasons. It holds more bitcoin, it has a larger fleet of miners, it’s embarking on bolder expansion plans, and its shares are cheaper.
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