Although the Bitcoin (BTC -2.30%) mining industry continues to grow, two companies currently lead the way: Riot Platforms (RIOT -1.49%) and Marathon Digital (MARA 2.21%). As the most valuable companies by market cap, Riot and Marathon have ascended to the top by means of differing strategies. While both have built a track record of success, which one is worthy of a spot in your portfolio?
To gain a better understanding of what separates one from the other, we need to take a comprehensive look at recent financial statements, long-term strategy, and competitive advantages unique to each company. In doing so, it will become clear which company is the true leader of the Bitcoin mining industry.
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Marathon continues at a record pace
Marathon is a clear leader in terms of hash rate, a metric that quantifies a company's computational power to mine Bitcoin. Based on third-quarter earnings, Marathon's installed hash rate hit a new all-time high of 23.1 exahashes per second (EH/s), good enough to produce nearly 3,500 Bitcoins. Should equipment installments and expansion plans be fulfilled in the coming months, Marathon expects to hit a hash rate of 26 EH/s by the end of the year and increase its mining capabilities by 30% in 2024.
With a soaring hash rate placing it at the top of the industry, Marathon had an impressive Q3 as it raked in $97.85 million in revenue. Add in the fact that expenses declined significantly, and Marathon turned a profit to the tune of $64 million. That's a refreshing improvement, considering that last quarter, the company posted a net loss of more than $19 million.
Likely the most beneficial development to occur for Marathon was its restructuring of long-term debt. With debt totaling more than $780 million before Q3, Marathon completed a note exchange in September that reduced long-term debt by 56% and captured a total savings of approximately $101 million in cash. For the first time since 2021, Marathon's cash and Bitcoin holdings exceeded debt at the quarter's end.
Riot's misleading setback
Notching its own all-time high hash rate just shy of 11 EH/s, Riot produced 1,106 Bitcoins over the past three months. Yet, while hash rate increased, Riot's total production took a serious hit. Last quarter, Riot produced 1,775 Bitcoins. But as a result of it mining 600 fewer Bitcoins in Q3, total revenue fell nearly one-third, causing the company to post a net loss of more than $45 million.
There are likely a handful of reasons why production declined even though hash rate increased. The most plausible is related to Riot's power strategy, where it turns miners off when the cost of electricity exceeds mining profitability, a luxury it can afford thanks to its location in Texas. When this situation occurs, as it often does during peak summer months, Riot sells electricity back to the grid and receives power curtailment credits. In Q3, Riot obtained nearly $50 million in credits, but due to accounting practices, power curtailment credits are not included in revenue.
The tale of the tape
While hash rate and total production are commonly used metrics in comparing Bitcoin mining companies, there is much more to consider. If we were to only use production, Marathon would be a clear winner.
However, while Marathon is nearly twice as productive as Riot, its exorbitant debt could hinder profits. While the recent debt restructuring was badly needed and a step in the right direction, there is still a hefty chunk left over. And when compared to Riot, which has virtually zero long-term debt, Marathon's liabilities become magnified.
Riot's absence of debt is what makes it particularly suited to thrive in the volatile Bitcoin mining industry. Not to mention, the company has plans to expand its hash rate to more than 20 EH/s by next year as it builds its Corsicana Facility, a project fully funded independent of external financing.
The cherry on top is Riot's unique power strategy that has led to some of the lowest costs in the industry. As it currently stands, the average cost it takes for Riot to mine one Bitcoin is just $14,400. For Marathon, this number sits closer to $24,000.
At first glance, Riot's Q3 was extremely dismal compared to Marathon's. However, only comparing hash rate and revenue doesn't paint the full picture. Even though this quarter was less than ideal for Riot, the company is in a much stronger financial position and will continue to benefit from its expansion plans and unique energy strategy.
While Marathon's production is at the top of the industry, Riot is a more well-rounded company that will help it succeed in the long haul. And that is why Riot Platforms may be a better fit for your portfolio than Marathon Digital.
