With quarterly revenue of US$124.5 million ($168.20 million), ongoing losses and declining revenue growth over the past year, MicroStrategy’s US$93 billion market cap appears “significantly detached” from its core business fundamentals, says Yeap Jun Rong, market strategist at online trading provider IG.
The Nasdaq-listed company has substantial Bitcoin holdings and a price-to-sales (P/S) ratio approaching 200 times. This seems to render traditional valuation metrics “largely irrelevant”, Yeap adds in a Jan 27 note.
MicroStrategy is set to release its financial results for 4QFY2024 ended Dec 31, 2024 on Feb 5, after the US market closes. Yeap expects revenue of US$124.5 million, flat y-o-y; along with non-GAAP net loss of US$20.5 million, reversing from a US$102.5 million net profit in 4QFY2023.
Yeap also forecasts a loss per share of 12.5 US cents for the quarter, compared to earnings per share of 56 US cents in 4QFY2023.
Market participants are primarily valuing the company based on its Bitcoin holdings, which have grown significantly over the years, says Yeap. This increase, alongside the rise in Bitcoin's market value, has contributed to a 577% surge in MicroStrategy’s share price over the past year till Jan 27.
Over the past year, the 20-day rolling correlation between the company’s share price and Bitcoin’s price has fluctuated between -0.28 and +0.94, notes Yeap. “This suggests that while Bitcoin’s price remains the primary driver, other factors such as macroeconomic conditions and corporate strategies — like issuing additional shares to fund Bitcoin purchases — also play a role in shaping the stock’s performance.”
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Capital raise roadmap
Earlier this month, MicroStrategy announced that it is targeting a capital raise of up to US$2 billion, following through with its “21/21 plan”, which seeks to raise US$21 billion of equity and US$21 billion of fixed income instruments over the next three years (US$10 billion in 2025, US$14 billion in 2026, and US$18 billion in 2027).
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“The main goal is clear, which primarily is to offer US$42 billion worth of firepower to further load up on its Bitcoin holdings, a strategy that has been well-supported by investors thus far,” says Yeap.
The initial reaction to the early-January announcement has been positive, and Bitcoin prices hovering at its recent highs could play a key role in bolstering sentiments further, adds the analyst. “Given the company’s unique combination of providing traditional enterprise software and digital asset investments, market participants will be looking to hear how the company plans to balance these two very different aspects of its business at the upcoming earnings call.”
Yeap says MicroStrategy’s founder, Michael J. Saylor, will likely continue emphasising his commitment to buying and holding Bitcoin “indefinitely”, while tying the company to outperform Bitcoin as an “intelligent leverage”.
Saylor’s capital-raising roadmap has been laid out through 2027, so investors will be looking for any additional insights on the company’s plans moving forward.
What analysts say
More analysts have begun covering MicroStrategy over the year, with 78% of call ratings at “buy” and 22% at “strong buy”.
The current median price target stands at US$510, which will suggest a retest of its Nov 21, 2024 all-time high of US$543.
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From a technical standpoint, sentiment around MicroStrategy’s share price has improved lately, says Yeap, with its share price recently forming “a new higher low and higher high”. “A bullish crossover displayed on the daily moving average convergence/divergence (MACD) suggests that near-term momentum is shifting in favour of buyers.”
That said, broader risk sentiments may be expected to take a hit into the new week, as China’s new AI model, DeepSeek, seems to instil some concerns over US tech dominance and put companies’ lofty valuations back under scrutiny, says Yeap. “While it remains to be seen if DeepSeek will prove to be a viable, cheaper alternative in the long term, investors may be adopting a ‘sell first, think later’ mindset for now.”
On the downside, Yeap thinks investors should watch for any formation of a higher low as a continuation of its near-term upward trend, possibly near a key upward trendline support around the US$330 level. Failure to hold the trendline support could call for a move to retest the US$275 level next.
Shares in MicroStrategy closed US$5.75 lower, or 1.63% down, at US$347.92 on Jan 27 in the US.
Charts: IG
