Summary MicroStrategy's stock has surged over 500% in 2024, outperforming all assets, driven by its massive bet on Bitcoin's price and adoption. Despite declining profitability in its software business, MicroStrategy transformed into a "digital goldmine" by leveraging low-interest convertible bonds to amass Bitcoin. The company holds 402,100 BTC, valued at $38.20 billion, and aims to raise $42 billion to accumulate more Bitcoin through its aggressive "21/21 plan". MicroStrategy's Bitcoin Yield, measuring acquisition efficiency, stands at 56.4%, with a target of 6-10% annually, reflecting its strategic focus on Bitcoin accumulation. Investment Thesis MicroStrategy ( MSTR ) has become the undisputed darling of Wall Street in 2024, having risen by over 500%. Love it or hate it, the numbers don't lie: it has outperformed every asset in existence this year, even the one responsible for its own rise, Bitcoin. mstr-tracker.com Let's get straight to the point. The reason why this stock is rising so much, it's because it's not even a traditional company anymore. It's a high-stakes bet on Bitcoin's price and potential for adoption. Citron Research has recently taken a short position on the stock, calling it "overheated". Other skeptics are calling it a ponzi scheme. We, on the other hand, are looking at the full picture here. This stock has the potential to reach half a trillion dollar market cap, and it all depends on one man's plan - Michael Saylor. MicroStrategy as a Software Company The truth is that MicroStrategy is not the best software company you can buy. The company's business intelligence segment has seen its profitability decline steadily over the past decade. Between 2010 and 2019, MicroStrategy averaged $3.94 in annual earnings per share ((EPS)), but by 2024, that figure dropped significantly due to massive share dilution and operational losses. With shares increasing from 10.1 million in 2019 to 216.24 million in 2024 , EPS now sits at just $2.18 TTM. Operational losses have also deepened, with TTM losses of $406.7 million reported in 2024. CCN The "Infinite Money Glitch" and the "21/21 Plan" Disregarding the software segment of the business, MicroStrategy has transformed itself from a losing business into a "digital goldmine", metaphorically and literally. The company is essentially raising funds through low-interest convertible bonds and investing it all into Bitcoin. This means that they are converting an inflating asset into a scarce one, for free. These bonds are issued at a 0% interest rate and investors are willing to lend the company money with the prospect of converting those loans into shares in the future. Additionally, MicroStrategy has used Bitcoin's volatility to its advantage, by turning impairment losses into deferred tax benefits. For example, in 2022, Bitcoin-related impairments accounted for nearly 77% of operating expenses, but these also positioned the company to benefit when Bitcoin prices rebounded this year. With 402,100 BTC at the time of writing this report, valued at $38.20 billion, MicroStrategy now holds close to 2% of Bitcoin's lifetime supply. Following its Q3 2024 earnings release, the company has announced a more aggressive accumulation plan for Bitcoin. This "21/21 plan" aims to raise $42 billion, split evenly between equity and debt, to accumulate even more coins. The Bitcoin Yield, which measures the efficiency of Bitcoin acquisitions relative to shareholder capital deployment is how the company evaluates its strategy. As of Q4 2024, MicroStrategy's Bitcoin Yield stands at 56.4%. The proposed annual target is 6-10%. HedgeMix This high yield is probably unsustainable in the long run but really shows the company's ability to acquire Bitcoin at favorable prices and with efficient financing. The higher the yield, the more effectively MicroStrategy enhances shareholder exposure to Bitcoin without excessive dilution or over-leveraging. Historically, each 1% change in Bitcoin Yield has corresponded to approximately 4,557 BTC acquired. Using this correlation, we can estimate the company's annual Bitcoin acquisitions under three scenarios: HedgeMix If Bitcoin's price stabilizes around $100,000 in the coming years, the 21/21 Plan could increase MicroStrategy's holdings to between 600,000 and 700,000 BTC by 2027. In the longer term, our projections estimate the company's holdings to exceed 1,000,000 BTC by 2032 under the bullish scenarios. Valuation Valuing MicroStrategy is not an easy challenge since traditional methods such as DCF models fail to capture the company's dual role as a software company and Bitcoin treasury. Instead, we choose to value the company based on its Bitcoin holdings and the premium investors are willing to pay for it. As of the 2nd of December 2024, MicroStrategy's 402,100 BTC holdings are valued at approximately $38.20 billion, taking an average price of $95,000 per coin. After accounting for $4.57 billion in liabilities, its net Bitcoin assets stand at $33.63 billion. MicroStrategy currently trades at an NAV premium of approximately 2.54. Under various Bitcoin price scenarios, this premium has a dramatic impact on the implied share price: $95,000 BTC: Implied share price of $395 which is the current price. $250,000 BTC: Implied share price could soar above $1,000 at the same NAV multiple. $250,000 BTC with a tech premium such as 8x: Share price could exceed $3,400. HedgeMix The valuation further depends on MicroStrategy's ability to execute its 21/21 Plan and maintain its efficiency in acquiring Bitcoin. However, what is remarkable about the company's model, is that unlike traditional revenue sources that cannot be adjusted, Bitcoin's value could keep increasing as long as MicroStrategy keeps acquiring and holding it. If Bitcoin's price rises over time, "Bitcoin revenue" grows in parallel. Assuming a Bitcoin price from $75,000 up to $1,000,000 and various multiples on NAV, we can extrapolate some price estimates for MicroStrategy, from the most conservative to the most bullish scenario. (This valuation also assumes that BTC holdings remain constant). HedgeMix Now, you also might be worried if this is a very bullish target price for Bitcoin. We are simply using some publicly available valuation methods like the Bitcoin rainbow chart , which is predicting an average Bitcoin price between $200,000 and $1,820,000 by 2032. Bitcoin Rainbow Chart And it looks like we are being conservative here. The Bitcoin Stock-to-Flow Model by PlanB is forecasting a price of $5 million by 2032, based on the assumption that the ongoing supply reduction will continue driving the price upwards. And we're not the only ones sharing this bullish sentiment. Here are some predictions for Bitcoin's price by analysts within the next 8 years: HedgeMix Now, if you are worried about the 2.54x NAV premium, you really have no reason to. The company is essentially offering Bitcoin exposure as a regulated equity vehicle, something that institutional investors love. It is also a tax-advantaged way for retail investors to hold Bitcoin through retirement accounts. Lastly, the company is still generating cash flows through its software segment, justifying an extra premium. As for the worries about liquidation, although valid, we really see no reason to stress at the current Bitcoin price levels. MicroStrategy's average Bitcoin price is around $58,000 . As volatile as the digital currency is, there is a long way to go before it drops to those levels that could force the company to start liquidating its holdings. Lastly, the company is currently borrowing at essentially 0% interest rates, and in any worst-case scenario, it is still generating some decent cash flows that could help weather any potential storm. Catalysts Donald Trump's recent presidential victory is widely seen as favourable for Bitcoin, as he intends to create a U.S. strategic Bitcoin reserve. Growing legislative support, thanks to Senator Cynthia Lummis's BITCOIN Act, is also bullish for Bitcoin. Any positive catalysts for the cryptocurrency translate to bullish momentum for MicroStrategy. A potential inclusion to the Nasdaq 100 Index in the next rebalancing before the end of the year could attract inflows from ETFs like QQQ, QQQM, and QQQE, estimated at close to $1 billion. Upcoming changes in accounting standards after December 15 will allow MicroStrategy to report its Bitcoin holdings at market value, which could be seen as a positive event for shareholders. Ben Werkman on X Summary We are very bullish on the long-term potential for MicroStrategy and Bitcoin in general. The company's revolutionary strategy of converting fiat capital into a deflationary and appreciating asset is appreciated by Wall Street as well. If Bitcoin's price continues to surge beyond $100,000, MicroStrategy could see its NAV multiply even further. This will translate to more demand for shares, which will keep outpacing dilution and keep pushing the share price higher. Our target share price is close to $1,000. Although some risks are evident, the market's enthusiasm reeks of confidence in this stock, and so do we. We believe there is more substance to the hype and there is still plenty of space for the company to grow. Feel free to follow us!
