Valued at $25 billion by market cap, MicroStrategy (MSTR) provides enterprise analytics and mobility software solutions. It designs, develops, markets, and sells software platforms through licensing agreements and cloud-based subscriptions.
While MicroStrategy is inherently a software company, it has invested heavily in Bitcoin (BTCUSD) in the last four years. In 2020, MicroStrategy’s Executive Chairman Michael Saylor initially bought Bitcoin worth $250 million. According to Saylor, Bitcoin is a store of value with potential for long-term capital appreciation.
Today, the software company owns 214,246 BTC, valued at more than $14 billion. Due to its massive exposure to the world’s largest cryptocurrency, MSTR's stock price is tied to Bitcoin.
Since April 2019, BTC prices have surged from $5,170 to about $66,500 today at the time of writing. Comparatively, MSTR stock has returned 910% in the last five years, crushing broader market returns.
Down 26% from its late-March 52-week highs, let’s see if MSTR stock is a good buy right now.
MicroStrategy Funds BTC Via Debt and Equity
MicroStrategy’s core business has failed to impress investors, as revenue has risen from $480 million in 2020 to $496 million in 2023. Unlike other high-margin software companies, MicroStrategy reported an operating income of just $11 million in 2022, and this figure fell to $1 million last year.
On the other hand, MicroStrategy took advantage of lower crypto prices, and invested $726 million in Bitcoin in 2023. But how is MicroStrategy purchasing Bitcoin? Well, the company has raised debt to buy the digital asset, increasing its net debt to $2.1 billion in 2023, up from $531 million in 2020. MicroStrategy can easily sell its Bitcoin and cover its outstanding debt, but it is unlikely to do so, given Saylor’s bullish stance on the digital asset.
In addition to debt, MicroStrategy has also raised equity capital to fund its BTC purchases, as its outstanding share count has almost doubled from 9.7 million in August 2020 to 17 million in March 2024, diluting shareholder wealth in the process.
Will BTC Prices Move Higher?
Bitcoin prices have experienced a spectacular rally, surging roughly 300% since the start of 2023. The cryptocurrency touched an all-time high of $73,000 last month, and has pulled back by more than 10% since then.
The launch of multiple spot Bitcoin ETFs has driven the rally in the digital asset due to robust demand from retail and institutional investors. The upcoming Bitcoin “halving” event should also act as a tailwind for BTC. Generally, every four years, the amount of Bitcoin that can be mined and mining rewards reduces by 50%. So, BTC prices advance in anticipation of demand remaining constant (or rising) as supply reduces by 50%.
The last two halving cycles took place in mid-2016 and mid-2020. BTC prices surged from $419 in April 2016 to $19.650 in December 2017, while they rose from $6,874 in April 2020 to $68,000 in November 2021.
What is the Target Price for MSTR Stock?
Each of the four analysts covering MSTR stock has a “strong buy” rating. The mean price target is $1,733.35, indicating a 17.2% upside potential.
While additional volatility is to be expected, you can invest in MSTR if you expect BTC prices to increase in the next 18 months.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
