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MicroStrategy stock sale: MSTR share issue on cards to buy more BTC as chair Saylor digs in and doubles down

By Rob Griffin

Edited by Georgy Istigechev

16:32, 21 October 2022

MicroStrategy head Michael Saylor speaks at Bitcoin 2021 Convention in Miami
MSTR stock has lost close to 70% of its value over the past year – Photo: Joe Raedle / Getty Images

MicroStrategy (MSTR), the business intelligence specialist, has seen its stock price rise 16% since revealing it was raising $500m to help fund bitcoin (BTC) purchases.

The US-based company announced in early September that it was selling up to $500m of its stock, with the proceeds partly used to acquire more of the cryptocurrency.

It then revealed that $6m had been spent on buying approximately 301 bitcoins between 2 August 2022 and 19 September 2022 at an average price, inclusive of fees, of $19,851.

MSTR Live Stock Price Chart

But even though the MSTR stock has been rising, it’s still close to 70% lower than a year ago after a miserable period marred by disappointing company results and the falling bitcoin price.

In this MicroStrategy stock analysis, we examine MicroStrategy’s recent results, how its prospects are linked with crypto, and reveal where analysts believe the MSTR stock price will go next. 

What is MicroStrategy?

MicroStrategy, a US-based firm headquartered in Tysons, Virginia, was founded back in 1989 and went public in June 1998. It trades on the Nasdaq stock exchange under the MSTR ticker.

The company provides business intelligence, mobile software and cloud-based services to its clients. However, it’s equally well known for being a prolific buyer of cryptocurrency.

In a recent prospectus supplement, MicroStrategy outlined its two main corporate strategies when it came to how the overall business operated.

The first is to “acquire and hold bitcoin”. The other was to grow its enterprise analytics software business.

“We believe that undertaking these two, interdependent corporate strategies serves as a key differentiator for our business,” the company stated.

The company claimed its bitcoin acquisition strategy had raised its profile with potential software customers, and that its enterprise analytics software business has provided stable cash flows. These have, in turn, enabled it to “acquire and hold” bitcoin for the long term. 

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MSTR stock price analysis

The stock price has risen close to 15% over the past month, from $191.45 to $219.18 on 21 October 2022. However, it has been a rocky 12 months for the company.

MSTR stock has fallen 70% over the past year and is 60% down since the start of 2022. Over the past six months, meanwhile, the stock has lost half its value.

MICROSTRATEGY (MSTR) 5Y STOCK PRICE CHART

Of course, the cautious view of the company’s stock price is heavily influenced by the relative fortunes of bitcoin – and the coin has had a tough year.

The price of bitcoin has fallen 72%, from $67,553.95 in early November 2021 to $19,172.34 on 20 October 2022. 

Looking at the longer term, MicroStrategy has generated trailing returns of 10.77% over the past five years – ahead of the industry’s 7.17%, according to Morningstar data as of 20 October 2022. 

MicroStrategy stock sale: What happened?

In early September, MicroStrategy revealed it had entered an agreement to sell up to $500m of its stock with Cowen & Company and BTIG.

In a MicroStrategy stock sale statement, the company explained how its bitcoin acquisition strategy involved acquiring the cryptocurrency with liquid assets that exceed working capital requirements

It noted that “from time to time” it also issued debt or equity securities, or engaged in other capital-raising transactions with the objective of using the proceeds to purchase bitcoin.

The company stated:

“We believe that bitcoin is attractive because it can serve as a store of value, supported by a robust and public open-source architecture, that is untethered to sovereign monetary policy and can therefore serve as a hedge against inflation in the long term.”

So, how do the recent purchases of bitcoin affect this overall MicroStrategy crypto strategy?

As of 19 September 2022, MicroStrategy, together with its subsidiaries, held approximately 130,000 bitcoins. These were acquired at an aggregate purchase price of approximately $3.98bn, equating to an average purchase price of approximately $30,639 a bitcoin, inclusive of fees and expenses.

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There are clear concerns about MicroStrategy’s focus on building up its bitcoin exposure, according to Danni Hewson, financial analyst at AJ Bell.

“It now has the dubious title of being the largest corporate holder of the cryptocurrency,” she told Capital.com.

It’s obviously unclear at this stage, especially given how far bitcoin’s value has plummeted since late 2021, if such a stance is positive or negative.

“Whether you believe bitcoin has finally bottomed out or still has a way to fall, MicroStrategy has doubled down on its gamble,” Hewson said. “It could be a brilliant strategy but it will make many investors uncomfortable.”

Long-time CEO steps back

Other MicroStrategy news, announced in early August, included the fact Michael Saylor was assuming the new role of executive chairman, having previously been chief executive and chairman.

A statement confirmed that Phong Le, the company’s president, would take over as chief executive and would also serve as a member of the Board of Directors.

Mr. Saylor said: “As executive chairman, I will be able to focus more on our bitcoin acquisition strategy and related bitcoin advocacy initiatives, while Phong will be empowered as CEO to manage overall corporate operations.” 

Latest earnings report: key figures, data, and analysis

The company’s second-quarter 2022 financial results, which were announced in early August 2002, didn’t make for pleasant reading. They also illustrated how susceptible the firm was to movements in the value of bitcoin.

Losses from operations for the second quarter of 2022 were $918.1m, compared to $414.2m for the corresponding quarter last year.

These figures included digital asset impairment charges of $917.8m, relating to its bitcoin holdings, which served to highlight the influence of the cryptocurrency.

Therefore, the net loss for Q2 of 2022 was $1.062bn, or $94.01 a share on a diluted basis, compared to $299.3m, or $30.71 a share for Q2 2021.

The results also noted that total revenues for the second quarter of 2022 were $122.1m, marking a 2.6% decrease on the corresponding period last year.

The gross profit for the second quarter of 2022 was $96.9m, compared to a gross profit of $102.3m for the same period in 2021.

As of 30 June 2022, the carrying value of MicroStrategy’s digital assets (comprised of approximately 129,699 bitcoins) was $1.988bn, which reflects cumulative impairment losses of $1.989bn since acquisition, and an average carrying amount per bitcoin of approximately $15,326. 

Where will the MSTR stock price go next?

According to TipRanks, the company is classified as a ‘moderate buy’, based on the opinions of four analysts – three have it down as a “buy” and one a “sell.”

The average price target is $500.67, with a high forecast of $950.00 and a low of $180.00. The target represents a 123.79% premium over its $223.73 level as the market closed on 20 October 2022.

MarketBeat has the stock down as a “hold’. However, that’s based on just two analysts’ ratings – one “buy” and one “sell” – issued over the past 12 months.

Their consensus view is that MSTR stock could reach $500.67 over the coming year. This would represent a 128.14% upside over the current price level. The predictions ranged from $180 to $950.

According to the algorithmic forecasts of Wallet Investor, meanwhile, the stock is a “very good long-term (one year) investment” that could rise 44% to $325.33 over the coming year.

The site’s five-year forecast has a projected rise to $719.26. This would represent a 218% increase over the current (20 October) $226.08 MicroStrategy stock price.

Hewson believes there’s an overriding issue with MSTR stock that has little to do with its actual corporate performance.

“It doesn’t really matter what investors think about MicroStrategy as a business because it’s become too interlinked with the fortunes of Bitcoin,” she told Capital.com.

FAQs

Is MicroStrategy overvalued?

Not according to the consensus views of four stock market analysts compiled by TipRanks. Their average price target is $500.67, with a high forecast of $950.00 and a low of $180.00. The target represents a 123.79% premium over its $223.73 level at market close on 20 October 2022.

Remember that analysts’ forecasts can be wrong. Always do your own due diligence before making an investment decision. And never invest or trade more than you can afford to lose.

Is MicroStrategy a buy or sell?

The stock is a ‘moderate buy’, based on the views of four analysts compiled by TipRanks – three have it down as a ‘buy’ and one as a ‘sell’.

However, it’s important to remember that analysts can be wrong in their projections and forecasts. That’s why you need to carry out your own research. And remember not to invest or trade more than you can afford to lose.

Is MicroStrategy a good buy?

Whether MicroStrategy is a good buy for you depends on a number of issues. You must consider your views on the stock, your investment objectives, and your overall attitude to risk. It is vital that you do your own due diligence on the company prior to making an investment decision. Never invest what you can’t afford to lose.

Markets in this article

BTC/USD
Bitcoin / USD
69687.95 USD
3344.1 +5.050%
MSTR
MicroStrategy Incorporated
1729.72 USD
146.47 +9.310%

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You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
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