Assignment
Read the case study and answer the questions below:
Marathon Digital Holdings is a publicly traded Bitcoin mining company with headquarters in Las Vegas, Nevada, and its mining facilities located in Montana, Texas, and elsewhere in the U.S. Its stock trades on the Nasdaq market with symbol MARA. MARA began as a uranium mining company in 2010, before switching its focus in 2012 to real estate, then to intellectual property licensing as a so-called "patent troll," and finally entering Bitcoin mining via a merger with Global Bit Ventures on November 1, 2017.
Bitcoin mining cannot reasonably be viewed as a growth industry, because the creation of new coins is programmed to decrease (since Bitcoin is deflationary in nature). By the middle of June 2022, slightly less than 19.1 million bitcoins had already been mined and were circulating. New bitcoins were being mined at a rate of approximately 6.25 every 10 minutes, and this rate is due to be cut in half around May 2024, then halved again every four years until a total lifetime supply of 21 million bitcoins is ultimately reached in 2140.
MARA provides monthly updates about its success in Bitcoin mining. The most recent update, dated June 9, 2022.
MARA files quarterly reports with the U.S. Securities and Exchange Commission. The most recent Form 10-Q, for the period ended March 31, 2022.
In the 10-Q filing, the balance sheet on page 3 indicates that MARA had approximately $750 million of long-term debt. The income statement on page 4 indicates that MARA had an operating loss of $9.1 million in the first 1st quarter of 2022 and also lost $5.5 million due to impairment in the value of its "investment fund," which consisted of Bitcoin that had been previously mined or purchased on the open market by the company.
Acording to a recent Bloomberg article, MARA's CEO estimated the company's breakeven cost to mine each bitcoin as approximately $6,500.1
Financial websites estimate MARA's equity beta at unusually high levels such as 4.68 (Yahoo! Finance).
Answer these questions below:
A. Assume that MARA's shares outstanding are the same as listed on the first page of the 10-Q. What was MARA's total equity value (market capitalization) as of May 31? What was the total enterprise value of the company (equity market capitalization plus long-term debt)?
B. How much of MARA's current enterprise value on May 31 could be explained by its holdings of BTC, assuming its bitcoins held in inventory could have been sold at that day's market price without income tax?
C. How much of the global Bitcoin hash rate did MARA control at the end of May, and how much did it expect to control by early 2023?
D. Using the estimates of MARA's future hash rate, how many bitcoin should the company expect to mine in 2023?
E. Using the May 31 market price of BTC and the company's own estimate of $6,500 cost per bitcoin mined, what would be its forecast operating profit for 2023?
F. Did MARA's stock price at the end of May, as referenced in your answer to part (A) above, seem to make sense given your answers to (A)-(E) above? Why or why not? What assumptions about the company's future could be used to justify the market price per share that prevailed at that time?