Summary MicroStrategy is the largest corporate owner of Bitcoin and just raised more than $600M in additional funds through convertible bonds to buy BTC. The firm also offers business intelligence/analytics solutions and targets the enterprise segment for its services. Holding a large amount of Bitcoin on its balance sheet creates unique asset concentration risks for MicroStrategy. MSTR share price has decoupled from the Bitcoin price, indicating bubble territory. BTC enthusiasts also have no reason to buy Bitcoin through a corporate structure. At a BTC price of $62k, I believe shares of MicroStrategy have approximately 30% downside. MicroStrategy ( MSTR ) is the largest corporate owner of Bitcoin and the investment company benefited greatly from the rise in the Bitcoin price in the last couple of months. The company also just raised another $604M via convertible notes to acquire even more Bitcoin. MicroStrategy further has a subscription business through which it offers business intelligence solutions to the enterprise market. While the firm's approach to acquiring and owning Bitcoin is unique, I don't see a specific competitive advantage for MicroStrategy and investors interested in cryptocurrencies may just want to own Bitcoin outright. MicroStrategy's share price has also fundamentally decoupled from the Bitcoin price which indicates that investors are dealing with a bubble here! Data by YCharts MicroStrategy is a Bitcoin proxy MicroStrategy is a Bitcoin-focused investment company with an attached software intelligence business that offers enterprise customers analytics and data services. In its core analytics business, MicroStrategy utilizes artificial intelligence in order to help companies make better and cost-effective decisions. MicroStrategy targets the enterprise segment for its business intelligence services and monetizes it through a subscription model. The company achieved an average of $20M in subscription services revenues quarterly from its software product suite and the company is seeing mid-20% range top line growth in this segment. MicroStrategy MicroStrategy is profitable on a gross profit basis, but the company's large Bitcoin holdings, which are accounted for on a mark-to-market basis, can introduce a high degree of volatility into the firm's profit and loss statement. In the most recent quarter for which financials were reported, Q4'23, MicroStrategy generated a gross profit of $96.3M and an operating loss of $42.8M. MicroStrategy MicroStrategy is not so much known for its subscription enterprise analytics business, but for its obsession with acquiring Bitcoin aggressively, often financed via convertible bonds. According to MicroStrategy's last investor presentation , the investment company owned 190,000 Bitcoin at an average price of $31,224/BTC as of February 5, 2024, which implies a cost base of $5.93B. With Bitcoin trading at $62k now, the company is sitting on $5.84B on unrealized gains (not including Bitcoin purchases in March related to new convertible bond offerings). MicroStrategy The company is using both excess cash from its software subscription business as well as equity and debt capital raises in order to acquire the firepower to add to its Bitcoin holdings. Since February 5, 2024, MicroStrategy engaged in a number of additional convertible bond transactions in order to acquire even more Bitcoin near all-time highs. The company raised billions of dollars to buy Bitcoin in the last several years and in March conducted two more capital market transactions through the issuance of convertible senior notes: the company offered convertible bonds totaling $1.4B for purposes of acquiring Bitcoin. The most recent transaction was a $604M convertible senior notes offering with a maturity date of 2031 (the transaction closed on March 19, 2024). MicroStrategy While MicroStrategy is the largest corporate owner of Bitcoin, I don't see any specific need or advantage for investors to go through a corporate structure like MicroStrategy to own the cryptocurrency or benefit from its growing adoption. Additionally, MicroStrategy's subscription business supplies some cash for Bitcoin asset purchases but doesn't really have any real relevance or value for investors who want to build exposure to the world's largest digital cryptocurrency. Investors that look for Bitcoin exposure can buy it directly through a cryptocurrency trading platform like Coinbase ( COIN ) or buy a Bitcoin-focused spot trading ETF like the Fidelity Wise Origin Bitcoin ETF ( FBTC )... which has a management fee of 0.25% (that is currently waived). For investors who are looking for an even more diversified bet on the crypto economy, an investment in Coinbase's shares could make sense: A Crypto Play With A Catalyst . MicroStrategy's shares are in a bubble Shares of MicroStrategy have soared lately which has been driven chiefly by Bitcoin climbing to new all-time highs and related investor enthusiasm. The increase in price for MicroStrategy's shares has decoupled from the Bitcoin price increase in 2024, however, which indicates to me that investors are widely overvaluing the investment company at this point. MicroStrategy's shares have soared 430% in the last year while Bitcoin's price only increased 147%. Since MicroStrategy owns Bitcoin directly (and no leveraged products), there is no reason why MicroStrategy's shares should have increased in price at 2.9X the rate of the Bitcoin price increase. Data by YCharts The company's 190k Bitcoins (last reported BTC count) are currently worth $11.8B based on a price of approximately $62k/BTC. The enterprise software business generates about $500M annually in revenues and if we were to assign a very generous P/S ratio of 10X to the business, it could be worth up to $5.0B (Salesforce ( CRM ), as an example, sells for 8X revenues). In total, MicroStrategy's Bitcoin holdings and the company's enterprise analytics business could together be worth $16.8B (fair value market cap). The current market cap is about $24.0B, implying a significant 30% draw-down potential, even without a potential correction in the Bitcoin price. Therefore, my fair value estimate, with approximately 17M shares outstanding, is $990 (based on a current BTC price of $62k). Risks with MicroStrategy Holding this much Bitcoin on the balance sheet creates unique concentration risks. The lack of diversification and aggressive exposure to Bitcoin makes MicroStrategy essentially a proxy Bitcoin investment where the subscription business is no longer really that meaningful. As a result, shares of MicroStrategy may prove to be highly volatile going forward, potentially exposing investors to wild changes in valuation. Final thoughts Bitcoin is the largest holding in my portfolio and I generally have a positive view of the cryptocurrency. However, I don't see any clear advantage in why investors would want to own Bitcoin through the MicroStrategy corporate structure. Investors who like and appreciate Bitcoin, for its place in a decentralized financial system, can own Bitcoin outright or invest through a very cost-efficient ETF which is cheaper and less complicated. The price of MicroStrategy's shares has also much more aggressively risen than the Bitcoin price itself lately, suggesting that the market is overpricing the company's Bitcoin gains. With no clear competitive advantage and an overvalued Bitcoin holding, I believe this is a bubble and I see an unattractive risk profile.
