MicroStrategy Adds 18.3K Bitcoins: Is Now the Time to Buy MSTR Stock?

MicroStrategy Incorporated (NASDAQ: MSTR) has significantly increased its Bitcoin holdings, acquiring an additional 18,300 BTC for approximately $1.11 billion. This acquisition brings the company’s total Bitcoin holdings to 244,800 BTC, valued at $14.67 billion. This report aims to provide an in-depth analysis of whether MicroStrategy is a viable investment option, considering its recent activities, financial performance, and strategic direction. The report will evaluate the company’s Bitcoin strategy, stock performance, financial health, and market sentiment to determine if MicroStrategy is a buy.

Introduction

Bitcoin Acquisition Strategy

Recent Acquisition

As of September 13, 2024, MicroStrategy purchased an additional 18,300 BTC for approximately $1.11 billion, acquiring each Bitcoin at an average price of $60,408. This acquisition occurred between August 6 and September 12, 2024. Following this purchase, MicroStrategy’s total Bitcoin holdings reached approximately 244,800 BTC, acquired at an aggregate purchase price of $9.45 billion. The company’s average purchase price per Bitcoin now stands at about $38,585, factoring in fees and expenses.

Historical Context

MicroStrategy’s Bitcoin acquisition strategy began in August 2020, and since then, the company has consistently added to its Bitcoin position. Michael Saylor has emphasized that Bitcoin has delivered superior returns, averaging a 44% annual increase since the company’s initial investment, compared to the S&P 500’s 12% annual rise over the same period. This strategy has positioned MicroStrategy as a proxy for Bitcoin, allowing investors to gain exposure to the cryptocurrency through a corporate structure.

Financing the Acquisitions

The latest acquisition was financed through the sale of 8,048,449 shares of its Class A common stock under an existing $2 billion at-the-market (ATM) stock issuance program. This approach of using equity sales to fund Bitcoin purchases has led to significant shareholder dilution, with a 110% increase in outstanding shares as of Q2 2024.

Financial Performance

Stock Performance

MicroStrategy’s stock has shown significant positive momentum in 2024. The company’s shares have doubled in 2024 and tripled over the past year, largely driven by Bitcoin’s performance, which gained 36% and 97% in the same periods. As of the latest report, MicroStrategy stock is up 6.6% to $139.66, with a 52-week trading range of $30.71 to $200.00. The stock has increased over 90% year-to-date.

Revenue and Earnings

In Q2 2024, MicroStrategy’s cloud subscription revenue increased by 21% year-over-year to $24 million. However, overall revenue declined by 7% during the same period, reflecting a transition to subscription-based services. Despite the decline in overall revenue, the company’s Bitcoin holdings have contributed significantly to its operational strategy and cash flow.

Bitcoin Yield

MicroStrategy has reported achieving a Bitcoin yield of 4.4% for the quarter to date (QTD) and 17.0% year to date (YTD), indicating successful management of its Bitcoin assets despite market volatility. This yield reflects the company’s ability to generate returns from its Bitcoin holdings, further enhancing its financial performance.

Market Sentiment and Analyst Opinions

Positive Sentiment

Analysts have generally expressed positive sentiment towards MicroStrategy’s Bitcoin strategy. TD Cowen raised its price target for MicroStrategy’s stock from $188 to $195, emphasizing that its Bitcoin strategy bolsters shareholder value. Additionally, Erik Voorhees, a prominent Bitcoin advocate, described MicroStrategy’s recent acquisition as a “bold move,” highlighting the ongoing depreciation of the U.S. dollar and the value of Bitcoin as a scarce asset.

Cautionary Views

Despite the positive sentiment, some analysts express caution. The Artisan Small Cap Fund highlighted concerns about the company’s franchise characteristics and dependence on Bitcoin’s price fluctuations. Additionally, the significant share dilution and reliance on debt to finance Bitcoin purchases pose risks to the company’s financial stability.

Risks and Challenges

Bitcoin Volatility

MicroStrategy’s stock tends to amplify Bitcoin’s gains, delivering a 111% price appreciation against Bitcoin’s 37%. However, this also means that the company’s stock is highly susceptible to Bitcoin’s volatility. If Bitcoin’s price were to fall significantly, MicroStrategy could face challenges repaying its debts and maintaining its financial health.

Shareholder Dilution

The company’s strategy of using equity sales to fund Bitcoin purchases has led to significant shareholder dilution. As of Q2 2024, there has been a 110% increase in outstanding shares, which could dilute the value of existing shares and impact investor returns.

Debt Levels

MicroStrategy has been funding its Bitcoin purchases through debt and equity, resulting in a net debt of $3.8 billion as of Q2 2024, a change from a previous net cash position of $531 million. This high level of debt increases the company’s financial risk, particularly if Bitcoin’s price were to decline.

Strategic Innovations

Bitcoin-Backed Bonds

MicroStrategy has pioneered innovative financial instruments, such as Bitcoin-backed convertible bonds. These bonds offer a 1% interest rate and premium returns, providing a unique entry point into Bitcoin investment without the direct risks associated with cryptocurrency trading. This strategy has allowed the company to capture a 50% premium on its bonds while benefiting from Bitcoin’s performance.

AI-Powered Business Intelligence Solutions

In addition to its Bitcoin strategy, MicroStrategy operates in the software technology sector, specializing in AI-powered business intelligence solutions. The company’s flagship platform, MicroStrategy ONE, has gained traction, contributing to its cloud subscription revenue growth. This diversification provides an additional revenue stream and reduces the company’s reliance on Bitcoin.

Conclusion

MicroStrategy’s aggressive Bitcoin acquisition strategy has positioned it as one of the largest corporate holders of Bitcoin, with 244,800 BTC valued at $14.67 billion. The company’s stock has shown significant positive momentum, driven by Bitcoin’s performance and strategic innovations such as Bitcoin-backed bonds and AI-powered business intelligence solutions.

However, investing in MicroStrategy carries risks, including Bitcoin’s volatility, significant shareholder dilution, and high debt levels. While the company’s Bitcoin strategy has delivered impressive returns, prospective investors should weigh these risks against the potential rewards.

Based on the analysis, MicroStrategy may be considered a buy for investors who believe in the long-term growth of Bitcoin and are willing to accept the associated risks. The company’s innovative approach and strong performance metrics make it an attractive investment option, but caution is advised due to the inherent volatility and financial risks.