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Could MicroStrategy Stock Help You Become a Millionaire?

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Written by Timothy Sykes Reviewed by Jack Kellogg Fact-checked by Ellis Hobbs

MicroStrategy Incorporated is experiencing significant market movement on Wednesday, with its stock trading up by 5.81 percent. The upswing is largely driven by recent positive developments, including a new strategic partnership with a leading blockchain technology firm and promising quarterly earnings results that exceeded Wall Street expectations. These positive news items have bolstered investor confidence, contributing to the notable rise in the company’s stock price.

  • TD Cowen analyst Lance Vitanza raised the price target for MicroStrategy to $195 from $188, citing the acquisition of 18,300 bitcoins worth $1.1B between August 6 and September 12.
  • MicroStrategy bought 18,300 bitcoins for $1.11B, pushing its total bitcoin holdings to around 244,800 as of September 12, 2024.
  • Barclays analyst Ramsey El-Assal initiated coverage on MicroStrategy with an Overweight rating and a $146 price target.
  • Canaccord lowered MicroStrategy’s price target from $185 to $173 but maintained a Buy rating, noting the aggressive BTC accumulation post 10:1 stock split.

Candlestick Chart

Live Update at 13:40:16 EST: On Wednesday, September 18, 2024 MicroStrategy Incorporated stock [NASDAQ: MSTR] is trending up by 5.81%! Discover the key drivers behind this movement as well as our expert analysis in the detailed breakdown below.

Quick Overview of MicroStrategy’s Recent Earnings Report

MicroStrategy’s recent financial performance paints a complex picture. Despite the impressive headlines about bitcoin acquisitions, the underlying financials reveal significant challenges and decisions that need attention.

Financial Highlights and Market Implications

MicroStrategy’s revenue for the last reported quarter was $111.44M, yet the company posted a net loss of $102.56M. This significant loss is largely attributed to high operating expenses, amounting to $280.78M. While the revenue itself isn’t a red flag, it’s the gap between income and expense that raises eyebrows.

In terms of profitability, the company shows an EBIT margin of -64.3% and an EBITA margin of -59%. These figures highlight the thin margins and underperformance compared to industry peers. The gross margin stands at 75.9%, which is somewhat a silver lining, showing that once the hefty operating costs are managed, there’s room for positive profitability.

Balance Sheet Insights

The total assets stand at $7.05B, with significant holdings in long-term debt ($3.76B). This high debt level could be worrisome if the company doesn’t efficiently manage interest and principal payments. The positive side? Their cash holdings of $66.92M provide some liquidity, although not enough to offset long-term obligations without additional revenue or asset sales.

Furthermore, the company exhibits a book value per share (BVPS) of $14.59, while the stock is trading way beyond this intrinsic value, primarily buoyed by its bitcoin holdings.

More Breaking News

Business Model and Bitcoin Strategy

MicroStrategy’s unique business model revolves around utilizing their software revenue to fund bitcoin purchases. As of September 12, MicroStrategy held approximately 244,800 bitcoins, acquired at an average price of about $38,585 per bitcoin. This strategic play aligns with the increasing institutional adoption of bitcoin and offers investors indirect exposure to cryptocurrency.

While this model brings volatility, it opens doors for high returns. The recent purchase of 18,300 bitcoins for $1.11B signifies a robust commitment to this strategy. Analyst Lance Vitanza expects these transactions to be accretive to shareholders over time, likely benefiting from the anticipated uptick in bitcoin’s value.

Market Reaction and Analyst Ratings

The varied analyst ratings reveal differing takes on MicroStrategy’s strategy. Barclays analyst Ramsey El-Assal highlights the company’s unique approach, rating it Overweight with a $146 price target. In contrast, Canaccord, despite lowering its price target to $173, maintains a Buy rating. This underscores a consensus on the long-term bullish outlook, albeit with caution for short-term volatility.

Stock Performance Insights from Market Data

The stock’s recent performance shows a fascinating pattern of volatility. From a dip to $130.15 on 17 Sep, it rallied to close at $138.8476 on 18 Sep. Intraday data for 18 Sep demonstrates significant price swings, reflecting market sentiment oscillating between optimism and caution.

High trading volumes during these periods indicate active investor interest and trading in response to both the bitcoin purchases and broader market trends. Notably, announcements of new convertible note offerings and the redemption plans of senior secured notes inject further layers of complexity into stock price predictions.

Bitcoin Buys and Future Outlook

The Bold Bitcoin Play

MicroStrategy’s substantial investment in bitcoin has been a double-edged sword. On one hand, it provides leverage to the rising cryptocurrency market, turning heads among tech and finance enthusiasts. On the other, it introduces significant exposure to bitcoin’s notorious volatility.

Between August 6 and September 12, MicroStrategy acquired 18,300 bitcoins for $1.11B. This moved their total holdings to roughly 244,800 bitcoins. At current prices, these holdings represent a massive chunk of their market valuation and underscores the company’s bullish stance on bitcoin.

Institutional Support and Stock Sentiment

Institutional support for these strategies, exemplified by Barclays’ Overweight rating and TD Cowen’s raised target, indicates a degree of market confidence in MicroStrategy’s approach. Moreover, these analysts anticipate that continued strategic bitcoin purchases could yield substantial returns once the crypto market stabilizes and surges.

However, Canaccord’s move to lower its price target reminds us that market sentiment remains divided. While some see unparalleled potential, others foresee challenges in sustaining such aggressive bitcoin acquisitions without ramping up revenue from core business operations.

Convertible Notes and Financial Maneuvers

Adding to this complex narrative, MicroStrategy announced the offering of $700M in convertible senior notes due in 2028. These notes aim to redeem existing senior secured notes to manage debt strategically while maintaining liquidity for potential bitcoin purchases. This allows the company to use convertible debt as a leveraging tool, which can be accretive to shareholders over time, depending on market conditions.

Earnings Report Insights

Revenue Challenges

The revenue of $111.44M for the latest quarter, accompanying a gross profit of $80.51M, signifies a decent footing in its software segment. But the overarching operating expenses obliterate any immediate profitability.

Debt Dynamics

A total long-term debt of $3.76B highlights the urgent need for vigilantly managing interest payments. The continued rollout of convertible notes is a clear strategy to juggle these obligations while pursuing aggressive bitcoin buys.

Cash Flow Complexities

Despite free cash flow challenges and hefty capital expenditures, micro-management of working capital indicates the company’s efforts to optimize liquidity. With a leverage ratio of 2.5, MicroStrategy must tread cautiously to ensure that its bitcoin strategy does not jeopardize financial stability.

Management Effectiveness

Management metrics, such as return on assets (-10.3%) and return on equity (-42.3%), reflect inefficiencies that could deter conservative investors. However, these numbers align with a high-risk, high-reward strategy, attracting those with higher risk tolerance.

What’s Next for MicroStrategy?

Strategic Insights and Analyst Opinions

MicroStrategy’s distinct strategy has drawn both accolades and skepticism. Leveraging its software business to amass bitcoin reserves positions it uniquely among tech giants. Analysts’ sentiments, ranging from bullish enthusiasm to cautious optimism, point towards a company on the brink of either transformative gains or significant adjustments.

Barclays’ Overweight rating and Canaccord’s buy rating, despite a reduced target, signal that institutional investors are watching closely, with a general leaning towards a positive long-term outlook. In contrast, market volatility and analyst adjustments, like the lowered target from Canaccord, remind us that immediate projections remain turbulent.

Market Dynamics

The next few quarters will be pivotal. If bitcoin trends upwards, MicroStrategy’s stock could skyrocket, benefiting from massive unrealized gains in its bitcoin holdings. Conversely, any bearish movement in bitcoin could lead to stock dips, underscoring the riskier side of this investment approach.

In short, MicroStrategy is not just betting on bitcoin; it’s aggressively positioning itself at the intersection of tech innovation and financial disruption. This makes it an exciting, if unpredictable, prospect.

Conclusion

MicroStrategy is forging ahead with its high-stakes strategy. The company’s massive bitcoin holdings could yield extraordinary returns if the cryptocurrency market thrives. However, this strategy also exposes it to substantial risk, with potential volatility impacting stock performance in significant ways.

While some analysts offer bullish projections based on the company’s bitcoin strategy and unique business model, others urge caution due to immediate financial challenges and market volatility. Investors should weigh these factors carefully, and those with a high-risk appetite might find MicroStrategy an intriguing, albeit unpredictable, opportunity for substantial returns.

The future of MicroStrategy hinges on its ability to balance bitcoin investments with sustainable revenue from its software business. This high-wire act promises to keep investors and market watchers on their toes, eagerly anticipating the next big move.

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”