MARA Holdings Cut to Sell by Compass Point as Earnings Approach, Due to Cash Burn Issues

Compass Point has downgraded MARA Holdings (MARA) from Neutral to Sell ahead of the company’s upcoming earnings report, citing unsustainable cash burn as a major risk to the firm’s financial health.

The research note released on Tuesday highlighted that Marathon Digital is struggling with rising operating costs amid a declining bitcoin price and increased energy expenses, which has put pressure on their profit margins. Analysts believe that MARA could face further cash burn, even with increasing block rewards from Bitcoin mining, especially considering the company’s aggressive expansion strategy.

While the company is well-positioned in the bitcoin mining space, Compass Point pointed out that MARA’s heavy reliance on debt financing to fuel its growth presents risks, particularly with interest rate hikes potentially squeezing the company’s margins. The note emphasized that continued losses without significant improvements in efficiency or bitcoin prices could lead to future equity dilution.

Despite a significant decline in stock value this year, Compass Point maintained a cautious outlook on MARA due to its inability to achieve consistent cash flow generation. The analysts expressed concern that the company’s debt levels and lack of diversified revenue streams make MARA vulnerable to further financial instability.

The company will report earnings after the market close on May 8, and analysts are closely watching for any signs of improvement in mining efficiency or cost reduction strategies. The stock has fallen by more than 20% year-to-date, while the broader crypto mining sector continues to face headwinds from global market volatility.