MicroStrategy stock has risen more than 25% Monday, hitting a record high as investors react to Bitcoin’s surge and the company’s purchase of some 27,200 coins over the past two weeks.
MicroStrategy Chairman Michael Saylor speaks at a conference in 2021.
The company is the largest corporate holder of Bitcoin, with a stake of 279,420 coins. Itdisclosed early Mondaythat it had bought the additional coins for about $2 billion from Oct. 31 through Sunday, funded with sales of new equity.
MicroStrategy owns more than 1% of the roughly 20 million Bitcoin outstanding. The latest buy is one of its largest purchases since it pivoted to its current strategy of accumulating Bitcoin in 2020.
The stock, however, remains a pricey way to own the cryptocurrency: The company is valued at three times the value of its Bitcoin stake, a near record premium, Barron’s estimates. The figure is up from about 2.3 in mid October and close to parity at the end of 2023.
MicroStrategy shares finished Monday at $340, up 26% on the session and a new record close. The stock up more than fivefold so far this year.
Bitcoin, which trades around the clock, seven days a week, was up about 13% to $86,700 on Monday relative to trading levels Friday. The price has doubled this year.
Here’s our math on MicroStrategy’s premium to its Bitcoin holdings and why that makes the stock look expensive. The company’s Bitcoin stake (279,420 coins) is now worth about $24 billion based on the current Bitcoin price, while the company’s market capitalization is nearly $72 billion based on 210.8 million basic shares outstanding.
MicroStrategy also has more than $4 billion of debt and a software business that some analysts estimate is worth about $1 billion. Its enterprise value—debt plus equity-market value—adjusted for the software business is around $75 billion, we calculate, or about 3.1 times the value of its Bitcoin stake.
Using the company’s fully diluted share count of 242 million shares, disclosed in MicroStrategy’s press release Monday, the premium is close to 3.5, Barron’s estimates. The fully diluted count reflects conversion of the company’s convertible debt into equity.
This means investors effectively are paying about $250,000 for each of the company’s Bitcoin, even though the price of the coins is in the mid $80,000 range, we calculate. Barron’s wrote recently that the stock was an expensive way to play Bitcoin.
One potential reason for the sharp recent rally in MicroStrategy is short covering. There is a sizable short base in the stock that recently totaled 30 million shares, or about 16% of the available float.
Some investors may have been long Bitcoin and short MicroStrategy, hoping to capitalize on a narrowing premium on MicroStrategy shares relative to Bitcoin. This trade hasn’t worked well as MicroStrategy has outperformed Bitcoin, potentially forcing those in the arbitrage trade to unwind their holdings and buy back their MicroStrategy shorts.
Investors also may be gravitating to MicroStrategy as a Bitcoin bellwether.
Under the leadership of chairman and controlling shareholder Michael Saylor, MicroStrategy’s strategy has been to purchase large amounts of Bitcoin, funded by a combination of equity and debt sales. When the company disclosed its earnings in late October, management said that from 2025 to 2027, it planned to raise $42 billion in capital, divided equally between stock and new debt, primarily to buy more coins.
Using both debt and equity to fund purchases lets the company increase the amount of Bitcoin it holds per share in a way that is beneficial to shareholders, MicroStrategy said in October. It introduced a new financial metric called Bitcoin yield that seeks to measure that.
The Bitcoin yield isn’t a traditional yield measure. Instead, it reflects the percentage change, over particular periods, in the ratio between the company’s Bitcoin holdings and its shares outstanding.
Wall Street analysts are near uniform in recommending the stock. TD Cowen analyst Lance Vitanza wrote Monday: “MicroStrategy’s ability to tap the capital markets in size reflects in our view the market’s acceptance of its announced strategy to acquire and hold bitcoin – and to use its balance sheet to do so on terms that are clearly and demonstrably accretive to existing shareholders.”
But using debt to fund Bitcoin purchases involves the risk that prices of the coins might fall. The company’s debt traded for less than 50 cents on the dollar in 2022, when Bitcoin dipped below $20,000. The company’s average purchase price is around $42,000 per Bitcoin.
Given the high premium on MicroStrategy’s stock relative to its Bitcoin holdings, an exchange-traded fund like the $30 billion iShares Bitcoin Trust (IBIT) looks like a better play on the crypto market.
MicroStrategy stock’s premium to Bitcoin could erode, leaving the shares to lag behind the cryptocurrency.
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