Predicting MicroStrategy's Stock Position in the Next 5 Years
MicroStrategy, a company that went public back in 1998, was once seen as a slow-growth analytics software firm. Struggling to keep pace with more nimble cloud-based competitors like Salesforce, it seemed like an uphill battle for MicroStrategy to gain traction. But 2020 brought about a shift, as co-founder and then-CEO Michael Saylor directed the company to purchase 21,454 Bitcoin for $250 million. This decision marked a turning point for MicroStrategy, setting it on a path of amassing Bitcoin each year, with 450,000 Bitcoin in its inventory as of January 13, 2023.
This Bitcoin hoard now holds a staggering worth of $46.82 billion, accounting for 49% of MicroStrategy's enterprise value of $94.69 billion. MicroStrategy paid an average price of $62,473 per Bitcoin for this stash, which is significantly less than its current price of around $104,000. This makes MicroStrategy the world's largest corporate holder of Bitcoin.
Despite MicroStrategy's core software business exhibiting limited growth, its stock has skyrocketed 2,550% over the past five years, thanks to Bitcoin's soaring price. But this comes with a hefty price, as MicroStrategy continues to issue shares and take on more debt to finance its Bitcoin acquisitions.
Saylor believes Bitcoin's price could surge a whopping 12,400% to $13 million by 2045. He envisions Bitcoin accounting for 7% of the world's capital as more financial institutions incorporate Bitcoin-related services. Saylor also sees Bitcoin eventually trading in larger volumes than the S&P 500, attracting more investors toward the cryptocurrency.
MicroStrategy introduced the "21/21" plan last October, aiming to raise $42 billion by 2027 through a mix of equity and fixed income securities. This ambitious plan signifies investors should expect MicroStrategy to dilute its existing shares and take on even more debt to purchase more Bitcoin.
Yet, MicroStrategy's balance sheet showed total liabilities of $408 million at the end of 2019, with a manageable debt-to-equity ratio of 0.8. However, in 2020, these figures more than doubled to $913 million, with a higher debt-to-equity ratio of 1.7.
This substantial year-over-year increase in MicroStrategy's leverage was due to its first significant Bitcoin purchase. By the end of 2023, total liabilities reached $2.6 billion, with a debt-to-equity ratio of 1.2. This ratio stayed the same in the third quarter of 2024, although total liabilities expanded to $4.57 billion.
MicroStrategy's share count increased by 122% over five years, which highlights its ambitious strategy to bet on Bitcoin's future value. This decision could generate significant returns if Bitcoin's price continues to soar, but the downside can be dire if Bitcoin crashes, leading to a quick correction in its share price due to heavy debt and dilution.
In a nutshell, MicroStrategy's long-term strategy revolves around its substantial Bitcoin holdings, aiming to capitalize on the cryptocurrency's potential value in the long term. The company continues to raise funds to expand its Bitcoin holdings, with a goal of $42 billion over the next three years. Additionally, MicroStrategy is strengthening its software business, accelerating its transition to the cloud. This hybrid approach seeks to create synergy between its dual growth engines - Bitcoin and its software business. However, the company's stock performance remains closely linked to Bitcoin's price movements, making it a risky bet.
After seeing significant success with its Bitcoin investments, MicroStrategy is considering using the proceeds from its "21/21" plan to further diversify its finance portfolio by investing in other asset classes. The company's CEO, Michael Saylor, has expressed interest in exploring various investment opportunities beyond Bitcoin.
MicroStrategy's focus on Bitcoin has not only transformed its financial strategy but also its overall business model. The company is now actively engaging with financial institutions and advocating for Bitcoin's integration into traditional finance, aiming to drive broader adoption of cryptocurrencies in the finance industry.
