MicroStrategy, an American company that provides business intelligence, mobile software, and cloud-based services, saw its share price open higher in yesterday’s trading session as investors digest the news of its CEO and Bitcoin enthusiast, Michael Saylor, take a back seat as the CEO of the company after a depressive quarterly earnings report.
MicroStrategy’s stock is up over 140% from its May 2022 lows and as of the time of this writing, its share price is up by over 13.00% to currently trade $313.71 per share as of the time of this writing. This is the highest level the share price has traded since the first week of May 2022.
The stock’s intraday gains came as a part of a broader recovery that started on May 12 at $134. Since then, the share price of the company has grown by over 140% versus Nasdaq’s 26.81% gains in the same period.
What you should know
- The rally seen in MicroStrategy’s share price comes a day after MicroStrategy reported a billion-dollar loss in its second-quarter earnings call. As you would expect, impairment charges from the company’s Bitcoin exposure were a large reason for its poor quarterly performance.
- Although the firm is an information technology firm that provides business intelligence, mobile software, and cloud-based services, one of its primary corporate strategies is investing in Bitcoin to hold it long-term.
- Sadly, holding Bitcoin has cost MicroStrategy an impairment loss of $917.84 million from its 129,698 BTC holdings in Q2, primarily due to the crypto’s 50% year-to-date (YTD) price drop. In comparison, MSTR plunged 42% in the same period.
- Furthermore, MicroStrategy’s revenue fell 2.6% year-over-year to $122.07 million. The net quarterly losses prompted Saylor, who has strongly backed the Bitcoin investment strategy since August 2020, to quit as the firm’s CEO and become an executive chairman.
- The market looks to have responded positively to Saylor’s resignation and the appointment of Phong Le, President of MicroStrategy, as his replacement, suggesting that investors are comfortable with the change in leadership.
- Despite this current bullishness, MicroStrategy’s share price for the remainder of 2022 depends largely on Bitcoin’s performance, given their consistently positive correlation in recent years. But several metrics are hinting at a correction ahead.
- For instance, MicroStrategy’s enterprise value-to-revenue (EV/R) ratio was at 10.76 on Aug. 3, or in “overvalued” territory. Similarly, MSTR’s forward price-to-earnings (P/E) ratio has reached 54.95, more than double the market average of 20-25.
- In other words, the market expects MicroStrategy to show enormous future earnings growth despite its underperformance in recent quarters.
- MicroStrategy also has amassed $2.4 billion in long-term debts with $46.6 million in interest expense. Therefore, the company could find it unable to meet its debt obligations if it continues to suffer losses at the current pace. This means MicroStrategy could pledge its nearly $2 billion worth of Bitcoin holdings as collateral or sell them to raise capital.
In its latest analysis, juxtaposed Ideas, a Seeking Alpha contributor, stated, “Nonetheless, crypto and MSTR bulls may remain invested.” He further stated that most are willing to “gamble on Bitcoin’s eventual recovery to $40,000 or beyond by 2023 or 2024. That would be a positive catalyst for its future stock recovery, returning some much-needed capital to the highly volatile investment.”
