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Micro strategy (NASDAQ: MSTR)which went public in 1998, was once considered a slow-growth analytics software company. It struggled to grow in a crowded market while keeping pace with more nimble cloud-based competitors such as Salesforce.
That all changed in 2020, when MicroStrategy’s co-founder and then-CEO Michael Saylor directed it to buy 21,454 Bitcoinp (CRYPTO: BTC) for 250 million dollars. Then it accumulated more Bitcoin every year and it had 450,000 Bitcoins per January 13.
These Bitcoins are now worth $46.82 billion, or 49% of the company’s value of $94.69 billion. It paid an average price of $62,473 per Bitcoin ($27.95 billion) for that hoarding, which is 40% less than its current price of around $104,000. This makes the company the world’s largest corporate owner of Bitcoin.
Still, MicroStrategy’s core software business is still barely growing, and it’s constantly issuing more stock and taking on more debt to fund its Bitcoin purchases. The all-in bet on Bitcoin seems risky, but the stock is still up 2,550% over the past five years as the cryptocurrency’s price skyrocketed. Can MicroStrategy’s stock climb even higher over the next five years?
Saylor believes Bitcoin’s price could rise 12,400% to $13 million by 2045. Saylor expects Bitcoin to eventually grow from just 0.1% of the world’s capital today to 7% as more financial institutions roll out Bitcoin- related services. He also expects Bitcoin to eventually trade at higher volumes than S&P 500 as it wins over more investors.
Several other catalysts could lift Bitcoin to these levels. Its planned halvings, which cut mining rewards in half every four years, will keep supply tight and make it more comparable to gold and other precious metals. More retail and institutional investors could also invest in Bitcoin spot price ETFs as a hedge against inflation. Bitcoin’s growing reputation as a borderless “digital gold” may also prompt more inflation-stricken countries to adopt it as a national currency.
Last October, MicroStrategy introduced a “21/21” plan to fund its future Bitcoin purchases. Under that plan, it will raise $42 billion ($21 billion in equity and another $21 billion in fixed-income securities) by 2027. In other words, investors should expect it to dilute its existing stock and take on even more debt for to buy more Bitcoin.
At the end of 2019, MicroStrategy had $408 million in total liabilities on its balance sheet. The total did not include any convertible bonds and it had a low debt ratio of 0.8. But in 2020, its total liabilities more than doubled to $913 million – including $486 million in convertible notes – as its debt to equity the ratio increased to 1.7. The massive year-over-year increase in its leverage was fueled by its first major Bitcoin purchase.
