Is MicroStrategy Stock Doomed?

Is MicroStrategy Stock Doomed? Bitcoin investors recently experienced some rare good news as the much-maligned digital asset rose 25% in value during the first few weeks of 2023.

While this long-awaited price spike might have relieved some crypto enthusiasts increasingly starved of hope, the electronic token is still down almost 70% from its November 2021 high of $64,400.
However, one onlooker who will be more pleased than most is MicroStrategy executive chairman Michael Saylor. The charismatic talisman famously allied his firm’s fortunes to those of Bitcoin in 2020, and any positive moves will surely be to his liking.

That said, despite the bet appearing to pay dividends for a short time at least, the wisdom of Saylor’s strategy was seemingly weighed in the balance and found wanting this past twelve months.
In fact, MSTR hit a 52-week low at the end of December, settling just north of $132. To put that into context, the firm’s stock was worth around $1,272 in early 2021, representing a vertigo-inducing drop of 90%. And as Peter Schiff likes to say: 90% off isn’t a good buy – it’s more “a going-out-of-business sale.
So, with all that in mind, is MicroStrategy doomed – or is there still some viable upside left in this most unconventional of stocks?
Source: Unsplash

How Much Has Saylor Lost?

With 130,00 Bitcoins currently stashed away somewhere on a decentralized blockchain, MicroStrategy rightly likes to claim the company is “the world’s largest publicly traded corporate owner” of virtual currency.

Unfortunately, whereas that would once have been something to boast about, the turnaround in Bitcoin’s prospects of late has made it more like an albatross around the businesses’ figurative neck.

Indeed, the company’s average cost per Bitcoin at the end of the third period came to $30,639, which, at a market price of $19,480, suggests that MSTR is down around 36% on its original investment.

More worrying, perhaps, is that Saylor has taken on $2.4 billion in debt to fund his foray into the cryptocurrency space. Even worse, there’ve been rumors that a Bitcoin-backed $205 million loan from Silvergate Capital Corp received a margin call in the summer of 2022. MicroStrategy denied this, but the fact that sources were mooting this scenario does not engender confidence in the venture.

There’s A Lot More To MicroStrategy Than Just Crypto

Although the drama surrounding Michael Saylor’s Bitcoin escapades has hogged the headlines for the last couple of years, it’s important to remember that MSTR continues to operate a highly-regarded company outside of its cryptocurrency activities.

In fact, MSTR’s products and services are utilized by a diverse range of industries, including finance, healthcare, retail, and government. The company sports a robust product portfolio with a reputation for delivering top-notch, forward-thinking solutions.

Furthermore, MicroStrategy’s global reach – with offices and partners spanning various countries – positions the company to capitalize on the increasing international demand for intelligence and business analytics.

Interestingly, while the Bitcoin play is currently underwater, the firm’s traditional offering is extremely lucrative.

For instance, MSTR recorded a 51% year-on-year increase in its subscription services, with record growth in its current subscription billings too. Income from operations was positive for the first time in seven quarters at $6.1 million, with an operating margin of 5%.

Moreover, MicroStrategy has a strong track record of technological innovation, and the company has consistently delivered cutting-edge products to help organizations make data-driven decisions.

Crucially, MSTR states that its software business is not correlated to Bitcoin’s notorious market volatility, and that it has sufficient liquidity from its operating cash flows to make payments on its debt.

Hold And Hope?

MicroStrategy states that the company believes Bitcoin is “a dependable store of value…untethered to sovereign monetary policy.” But while this might be a central philosophical tenet for so-called Bitcoin maximalists, it doesn’t seem appropriate for a corporate entity with obligations and duties to its shareholders and regulatory bodies.

In fact, the idea might not even be true. For sure, Bitcoin is not backed by any physical commodity or government, and its value is not guaranteed by any institution. But it’s also not widely accepted as a form of payment in most places, making it difficult for individuals and businesses to use it as a medium of exchange, let alone a store of value.

Furthermore, the infrastructure and technology are still in their early stages, and subject to technical issues and security risks. This lack of standardization and regulation also makes it difficult for people to trust in its stability and security.

As with many debates concerning decentralized finance, the issue of whether or not you agree with it ultimately comes down to ideology. Saylor is clearly on the side of Bitcoin – and isn’t afraid to evangelize for the technology either.

But for retail investors with skin in the game and money on the line, the consequences of getting the call wrong could be catastrophic.

Nevertheless, Bitcoin has proved time and again that its fickle nature means nothing can be taken for granted. In fact, there’s no certainty that even if blockchain-based modes of transaction become commonplace that Bitcoin will be the prime beneficiary.

Indeed, there are several other crypto projects that could outcompete Bitcoin at its own game. Ethereum, with its proof-of-stake mechanism, is positioning itself as an environmentally friendly digital asset – which will no doubt make the currency and platform the first choice for green-conscious users.

So, is MicroStrategy doomed? It’s probably too early to tell. But, with the high-profile collapse of Terra and then FTX, nothing can be assumed when cryptocurrencies are up for grabs.

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