Microstrategy (MSTR) is about to make short sellers wish they had stayed in cash. This software company turned Bitcoin whale appears to be a problem for bears betting against it.
With over 444,000 bitcoins in its arsenal right now, MicroStrategy owns more Bitcoin than any other corporation in the world.
President-elect Donald Trump’s pro-cryptocurrency policies are fueling a meteoric rise of the industry. It is expected to flip the script on regulation and establish a strategic national reserve of Bitcoin.
But what’s really about to shine is MicroStrategy, just as it joins the Nasdaq-100. This will force institutional investors to buy MSTR, adding nearly $11 million in retail capital to the fund. The result? A possible short squeeze that could send the stock price into orbit.
MicroStrategy’s numbers: a high-risk bet with Bitcoin
MicroStrategy has pulled out all the stops and staked its future on the success of Bitcoin. The company’s 2024 has been crazy: its shares are up 440% over the past year and 123% in just three months. For context, that’s more than triple the performance of Bitcoin itself.
In the third quarter, MicroStrategy reported $116.1 million in revenue, a 10.3% drop from a year earlier. That’s not great, but let’s be real: no one cares about the software business anymore. What matters is Bitcoin. By the end of October, the company’s stash had grown to 252,220 bitcoins, valued at $9.9 billion.
This is the core of their strategy: buy Bitcoin, hold it, and wait for the price to skyrocket. To finance this, MicroStrategy sold 8 million Class A shares for $1.1 billion and doubled its long-term debt to $4.3 billion.
The company’s “21/21 Plan” is as ambitious as it gets. MicroStrategy wants to raise $42 billion, split between equity and debt, to buy even more Bitcoin. If you think that is excessive, you are not wrong. But the market seems to love it.
Bernstein’s Gautam Chhugani increase His price target for MSTR is $600, calling the company’s Bitcoin strategy “unprecedented.” TD Cowen continued with a target of $525. The benchmark index has the most bullish target at $650, almost double the current price.
Risks and rewards: the Bitcoin rollercoaster
MicroStrategy’s bet on Bitcoin has paid off so far, but it is not without risks. The company’s operating expenses soared 300% in the third quarter to $514.3 million, thanks to impairment losses on its digital assets. Its cash balance is just $46.3 million, a small cushion for such a highly leveraged company.
And while the issuance of $3 billion of convertible bonds with a 0% coupon provided interest-free capital, it is a double-edged sword. If the stock price falls, MicroStrategy could be forced to raise more money to pay down debt, creating a potential liquidity crisis.
However, this hasn’t stopped CEO Michael Saylor from doubling down. MicroStrategy is confident that Bitcoin will reach $1 million by 2033. Analysts seem to think this is more than a pipe dream.
Chhugani predicts that MicroStrategy could hold 4% of the total Bitcoin supply by 2033. TD Cowen estimates the company’s holdings will reach $108 billion by 2027.
However, as of press time, short interest in MicroStrategy is increasing. The bears are betting that the company’s focus on Bitcoin will backfire, but they are playing with fire.
When institutional money starts pouring in after Christmas, those shorts will be forced to cover, driving the stock price even higher. Analysts consider this a perfect setup for a short squeeze, and they are probably right.
MicroStrategy’s current valuation is high: 157.65 times forward sales, to be exact. That’s higher than Coinbase and Block, two giants of the crypto industry. But investors don’t seem to care.
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