November 1, 2023 [crocon media – msch] MicroStrategy Inc., under the leadership of Chairman Michael Saylor, has been at the forefront of corporate Bitcoin adoption. Since mid-2020, the company has amassed a staggering $5.5 billion in Bitcoin, transforming from a software entity facing challenges to a significant Bitcoin proxy for equity investors. This strategic move has seen its shares triple in value, outpacing the Standard & Poor’s 500 Index, which gained about 40% during the same timeframe.
However, the financial landscape is evolving. The US Securities and Exchange Commission (SEC) is on the brink of approving exchange-traded funds (ETFs) that will invest directly in Bitcoin. This development has sparked a debate among investors and analysts about the future premium of MicroStrategy’s shares. The company itself, in a recent filing, acknowledged the potential impact of such ETFs on its stock price, suggesting that if its Class A common stock is perceived as an alternative to Bitcoin, any premium over its Bitcoin holdings might diminish.
Saylor’s decision to invest in Bitcoin was driven by concerns over inflation and the desire to diversify the company’s cash holdings. This move was a pivot from the company’s core software business, which had seen stagnant revenues. Saylor’s focus on Bitcoin became so pronounced that he relinquished his CEO title to concentrate on the cryptocurrency dimension of MicroStrategy’s operations.
Analysts have been crunching the numbers. Lance Vitanza of TD Cowen estimates that MicroStrategy’s shares currently enjoy a 30% premium over the company’s enterprise value, thanks to its 158,245 Bitcoin holdings as of September. However, with the potential approval of Bitcoin ETFs, this premium could reduce to between 15% and 25%. Vitanza remains optimistic, believing that the introduction of Bitcoin ETFs will catalyze a rally in Bitcoin’s price, which could counterbalance the reduction in stock premium. He emphasizes MicroStrategy’s solid software business and its ability to leverage its Bitcoin holdings for further acquisitions.
The broader sentiment is that the advent of Bitcoin ETFs will usher in significant investments into the cryptocurrency, potentially to the tune of tens of billions of dollars. While this might reduce the premium embedded in MicroStrategy’s stock, the surge in Bitcoin’s price could more than compensate for it.
In the upcoming quarterly results, analysts anticipate MicroStrategy to report a revenue of $125.8 million and earnings (before charges like taxes) of $25.3 million. These figures mirror the revenue from the same period the previous year, with Ebidta reported at $8.2 million.
In the grand scheme of things, MicroStrategy’s Bitcoin holdings could redefine the company’s trajectory. The so-called “premium” might seem insignificant in the face of the company’s potential evolution in the coming years, driven by its strategic Bitcoin investments.
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