Riot Platforms (RIOT -1.49%) and Marathon Digital (MARA 2.21%) are two of the largest pure play Bitcoin (BTC 0.45%) miners in America. Both stocks hit their all-time highs in 2021 as Bitcoin's price skyrocketed, but they stumbled over the past two years as rising interest rates crushed the cryptocurrency market.
I compared these two stocks last June and called Riot the better buy because it faced fewer regulatory headwinds and had a healthier balance sheet. Riot's stock has risen nearly 150% since then, while Marathon's stock has advanced about 80%. Let's see why Riot outperformed Marathon -- and if it's still the better bet on the Bitcoin market.
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Similar business models, similar challenges
Riot and Marathon weren't originally Bitcoin miners. Riot was once a medical device maker called Bioptix, while Marathon was originally a patent holding company. Both companies abandoned those original business models, ordered thousands of top-tier Antminers from Bitmain, and rebranded themselves as pure play Bitcoin miners.
Riot had deployed 95,904 miners by the end of June, which gave it 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, it had claimed it could deploy 120,150 miners to generate a total hash rate capacity of 12.8 EH/s by January 2023.
Marathon had deployed 149,900 miners as of July 1, with a total hash rate capacity of 17.7 EH/s. However, that also missed its own target of deploying 199,000 miners to generate a total hash rate capacity of 23.3 EH/s by "early 2023."
Riot and Marathon both adopted a more conservative approach toward expanding their mining fleets as rising interest rates made Bitcoin and Bitcoin-related stocks a lot less appealing. Adverse weather conditions also boosted energy prices in recent months and forced both companies to mine fewer Bitcoins -- even as Bitcoin's price rose by 40% over the past 12 months. From May to June, Riot and Marathon mined 32% and 21% fewer Bitcoins, respectively, on a month-over-month basis.
After initially hoarding their mined Bitcoins, both companies started to liquidate some of them to raise fresh cash over the past year. In June, Riot sold 400 of the 460 Bitcoins it mined, while Marathon sold 700 of its 979 mined Bitcoins.
At the end of the first quarter of 2023, Riot held $129 million in unrestricted cash and $202 million in Bitcoin on its balance sheet, while Marathon held $114 million in unrestricted cash and approximately $380 million in Bitcoin holdings.
Marathon still has the same old weaknesses
Riot and Marathon seem fundamentally similar, but only Marathon is being actively probed by the Securities and Exchange Commission (SEC). In 2021, the SEC started to probe Marathon's joint venture with Beowulf Energy, which had been established to secure favorable energy rates for its data centers in Hardin, Montana. The SEC took issue with Marathon's usage of its own restricted shares instead of cash to fund that deal. This May, Marathon disclosed that it had received another SEC subpoena related to that joint venture. If Marathon is forced to end its partnership with Beowulf, its energy costs could surge.
Marathon also ended its latest quarter with a debt-to-equity ratio of 1.3, mainly due to the $733 million in convertible notes on its balance sheet, while Riot had a much lower ratio of 0.1. That higher leverage could make Marathon less appealing in this volatile market.
Both companies racked up steep losses last year
Riot's revenue surged from $12 million in 2020 to $213 million in 2021, then grew another 22% to $259 million in 2022. However, its net loss widened from $14 million in 2020 to $15 million in 2021, then ballooned to $510 million as the crypto winter dragged on and energy costs soared. But for 2023, analysts expect its revenue to rise 46% to $379 million as it narrows its net loss to $146 million.
Marathon's revenue soared from $4 million in 2020 to $159 million in 2021, but declined 26% to $118 million in 2022. Its net loss more than tripled from $10 million in 2020 to $37 million in 2021, then widened to a staggering $687 million in 2022. But on the bright side, analysts expect Marathon's revenue to more than triple to $424 million in 2023 as it brings two new plants online and launches a new joint venture in Abu Dhabi. It's also expected to generate a net profit of $33 million.
That ambitious expansion -- funded by a lot of the cash it raised through its recent convertible note offerings -- could offset many of its aforementioned weaknesses.
The valuations and verdict
Riot trades at seven times this year's sales, while Marathon has a lower ratio of 6. I'd rather directly buy Bitcoin than either of these capital-intensive Bitcoin miners right now, but Marathon is still a better pick than Riot for four simple reasons. It's holding more Bitcoin, it has a bigger fleet of miners, it's executing bolder expansion plans, and its stock is cheaper.
