Should Investing in MicroStrategy's Shares be Considered Wise?
MicroStrategy, with its ticker symbol MSTR (-1.63%), has surpassed expectations in the software sector, recently transforming into a significant Bitcoin (CRYPTO: BTC) treasury company. This shift in focus is responsible for its soaring stock performance, as seen in the chart below. Surpassing both the S&P 500 and Bitcoin itself, MicroStrategy has effectively become a leveraged Bitcoin ETF.
MicroStrategy's Crypto Strategy
MicroStrategy ventured into Bitcoin investment in 2020, selling debt and equity to amass its crypto holdings. CEO Michael Saylor is a vocal proponent of Bitcoin, with the company's software arm now taking a back seat to this new focus.
By Q3 2022, MicroStrategy owned 252,220 bitcoins, worth a total of $9.9 billion or approximately $39,266 per coin. Today, the market value of these holdings is approximately $26 billion.
During the same period, MicroStrategy raised capital through a $1.1 billion secondary equity offering and a $1.5 billion debt issuance.
While this strategy has earned dividends thus far, MicroStrategy's valuation has become disproportionate to the value of its Bitcoin holdings. As of Jan. 23, 2023, its market cap was over $91 billion, while its Bitcoin holdings were valued at approximately $26 billion.
The rest of MicroStrategy's business remains sluggish. In Q3 2022, the company reported $116.1 million in revenue, a 10% decrease from the previous year, and a meager adjusted profit of $900,000.
Investing in MicroStrategy's Bitcoin strategy involves both significant risks and potential rewards, directly related to the volatility of the crypto market.
Long-term Risks
Debt Sustainability
MicroStrategy's high debt of over $4 billion implies potential repayment challenges if Bitcoin prices fail to increase substantially.
Valuation Concerns
MicroStrategy's high price-to-sales ratio of 142.43 reveals potential valuation concerns, especially as investors price in significant Bitcoin growth or appreciation.
Volatility of Bitcoin
Bitcoin's volatility can bring substantial gains or losses for MicroStrategy, with the potential for cryptocurrency market corrections leading to significant losses for the company exporting this volatility to investors.
Regulatory Risks
Regulatory changes directly affect the cryptocurrency market and MicroStrategy's operations, potentially impacting its Bitcoin holdings' value.
Leverage and Liquidity
MicroStrategy's high leverage and potential short-term obligations could strain its liquidity and pose a threat to its financial stability.
Potential Benefits
Strategic Growth Focus
MicroStrategy's strategic Bitcoin investment aims to capitalize on the long-term growth potential of the cryptocurrency.
Innovation and Partnerships
The company's AI and financial system innovations could result in new revenue streams and enhanced shareholder value. Strategic collaborations with STACKIT and AWS indicate agility in adapting to regulated frameworks.
Diversified Assets
MicroStrategy's launch of Strike preferred shares offering a 8% dividend yield with Bitcoin exposure attracts investors seeking diversified assets with volatility preferences.
Bullish Analyst Perspectives
Despite valuation concerns, some analysts remain optimistic, with Bernstein raising its price target from $290 to $600 and Cantor Fitzgerald increasing its target from $613 to $619.
Investors should carefully weigh the risks and potential benefits before making an investment decision related to MicroStrategy's Bitcoin strategy.
After venturing into Bitcoin investment with the aim of capitalizing on its long-term growth potential, MicroStrategy has shown a significant interest in finance and investing. This strategy has led to the company amassing a large Bitcoin treasury, with a market value of approximately $26 billion as of January 23, 2023.
Investors looking to diversify their assets with a volatility preference might find MicroStrategy's launch of Strike preferred shares appealing, offering a 8% dividend yield with Bitcoin exposure. The potential benefits of MicroStrategy's Bitcoin strategy are substantial, but investors must carefully consider the long-term risks such as Bitcoin's volatility, debt sustainability, valuation concerns, regulatory risks, and leverage and liquidity.
