MicroStrategy: The Next Bitcoin Pullback Could Easily Halve This Stock's Value

seekingalpha06:40

I estimate that MicroStrategy's stock price mirrors at least a 2x leverage on Bitcoin, amplifying the risks of a significant decline after the current excitement surrounding Bitcoin cools off.With $...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nMicroStrategy: The Next Bitcoin Pullback Could Easily Halve This Stock's Value\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-22 06:40 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4739452-microstrategy-next-bitcoin-pullback-could-easily-halve-stocks-value><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>I estimate that MicroStrategy's stock price mirrors at least a 2x leverage on Bitcoin, amplifying the risks of a significant decline after the current excitement surrounding Bitcoin cools off.With $...</p>\n\n<a href=\"https://seekingalpha.com/article/4739452-microstrategy-next-bitcoin-pullback-could-easily-halve-stocks-value\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4585","symbol_name":"ETF&股票定投概念","start_time":0,"source_url":"https://seekingalpha.com/article/4739452-microstrategy-next-bitcoin-pullback-could-easily-halve-stocks-value","article_id":"2485422663","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1212617916/image_1212617916.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2485422663","pubTimestamp":1732228851,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"As I mentioned above, my thesis on MicroStrategy is quite simple. First, there is no doubt that the bull run is driven by the increase in bitcoin's price. In fact, I believe MicroStrategy's share price behaves much like a 2x leverage on Bitcoin . Just have a look at a return comparison between MicroStrategy and BITX, a 2x bitcoin leveraged ETF, over the past 6 months. Stock Rover Moreover, since November 6, bitcoin's price has increased by 40%, while MicroStrategy has risen by 86%. For the few readers who believe the software division of the company played any meaningful role in this bull run, I wanted to remind them of the financial results of this segment. According to the latest 10-Q, this year, the software division has delivered consistent operating losses, with a loss from operations of $18.46 million in Q3 202","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4585":"ETF&股票定投概念","MSTR":"MicroStrategy","BK4588":"碎股","BK4516":"特朗普概念","BK4596":"哈里斯概念","BK4595":"比特币概念","BK4023":"应用软件","BK4600":"加密货币概念"},"translate_title":"MicroStrategy：下一次比特币回调可能很容易将该股的价值减半","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"MSTR":0.9},"content_text":"I estimate that MicroStrategy's stock price mirrors at least a 2x leverage on Bitcoin, amplifying the risks of a significant decline after the current excitement surrounding Bitcoin cools off.With $48.08 million in operating losses YTD, the software business does little to support the current share price value.The recent $4.6 billion purchase cements its status as the largest corporate Bitcoin holder, with 331,200 BTC in its treasury.The main risk to my bear thesis is the uncertainty of Bitcoin's pullback timing and a potential recovery in MicroStrategy's software business, considering its pivot towards cloud-based solutions.While I rate MicroStrategy as a sell, I won’t short it until Bitcoin shows clear signs of reversing, given the current strong momentum.JuSun  MicroStrategy Incorporated (NASDAQ:MSTR) has been in the spotlight this week, after announcing on Monday, November 18, its largest acquisition of bitcoins to this date, totaling 51,780 for approximately $4.6 billion at an average price of $88,627 per bitcoin. On Wednesday, MicroStrategy surpassed NVDA and TSLA, becoming the largest traded stock in the US in terms of dollar value. There is no doubt of the high levels of shareholder excitement surrounding this stock. Its share price has increased by over 120% in the past month, with no clear signs of slowing down. Seeking Alpha As a matter of fact, this strong momentum is the main reason I haven't shorted the company yet, despite my sell rating. I will also clarify upfront that my bear thesis does not attempt to predict when a pullback in Bitcoin's price will occur. In my view, this momentum could likely continue in the short term. My thesis is simply centered around the fact that such a pullback is almost inevitable. And, when this occurs, MicroStrategy's share price could face a significant drop, potentially twice the magnitude of Bitcoin's decline. In this article, I will discuss why I believe so, along with other factors in my thesis, including the software segment of the company and some of the risks and limitations of shorting this company amidst the recent bull run. Bitcoin Can Only Go Up... Right? As I mentioned above, my thesis on MicroStrategy is quite simple. First, there is no doubt that the bull run is driven by the increase in bitcoin's price. In fact, I believe MicroStrategy's share price behaves much like a 2x leverage on Bitcoin (at the very minimum). Just have a look at a return comparison between MicroStrategy and BITX, a 2x bitcoin leveraged ETF, over the past 6 months. Stock Rover Moreover, since November 6, bitcoin's price has increased by 40%, while MicroStrategy has risen by 86%. For the few readers who believe the software division of the company played any meaningful role in this bull run, I wanted to remind them of the financial results of this segment. According to the latest 10-Q, this year, the software division has delivered consistent operating losses, with a loss from operations of $18.46 million in Q3 2024 alone. In fact, if we look further back, for the nine months ending September 30, 2024, the loss from operations for the software segment was $48.08 million. Therefore, considering the factors above, I have a high conviction that a bet on this stock acts as a leveraged bet on Bitcoin's price. Let's look now at MicroStrategy's exposure to this cryptocurrency. As of November 17, 2024, MicroStrategy is the largest corporate holder of Bitcoin, with approximately 331,200 bitcoins in its treasury, acquired at a total cost of $16.5 billion, with an average purchase price of approximately $49,874 per Bitcoin. Between November 10 and November 17, 2024, the company acquired approximately 51,780 bitcoins at an average purchase price of approximately $88,627 per bitcoin. As a side note, this was the largest single acquisition of bitcoins by MicroStrategy. Additionally, on November 20, MicroStrategy announced the successful pricing of its offering, which was increased to $2.6 billion from the originally planned $1.75 billion. It goes without saying that a significant portion of the funds will likely be used to continue its strategy of accumulating Bitcoin, which brings me to the core of my bear thesis: a pullback in Bitcoin's price. Just to be clear, I am not trying to speculate on a specific date for this pullback. It could be next week, next month, or next year, which is the main reason I am not shorting the company at the moment. However, what I am betting on here is that such a pullback will eventually happen. And, when this happens, I believe MicroStrategy's share price will experience a haircut of twice as much as Bitcoin's, being conservative. Let's have a closer look now at some of the previous pullbacks in bitcoin's price in 2021, 2022, and 2024. TradingView Considering the chart above, I believe the next pullback in bitcoin could be anywhere between 30% and 50%. To clarify again, I am not betting on when this event will occur. What I am betting on is that it will happen eventually. Therefore, at the very least, I believe MicroStrategy's share price will see a 60% decline. This isn't because the company itself is leveraged on Bitcoin, but because its share price behaves as if it were. And this apparent leverage seems to be over 2x. Valuation To be clear, I believe this is a momentum stock, where the company's valuation doesn't significantly factor into the reasoning of most investors. Let me make it plain: this is not a deep value play. Therefore, in my view, metrics like the price to sales ratio trading 6,000% above the sector median or the price to book value being nearly 700% higher than the sector median are quite irrelevant, as I don't believe investors buying this stock are even considering these ratios for their rationale. However, my bear thesis doesn't rely on the stratospheric valuation metrics of the company to fundament my sell rating. As I said before, my rating is based on the high chance of a future pullback in Bitcoin's price, which could lead to a 2x decline in MicroStrategy's share price. How I Can Be Wrong The main risk to my bear thesis is the uncertainty of when a pullback in Bitcoin's price will happen. Essentially, I don't believe anyone can accurately time the next pullback in Bitcoin's price, which means that it is essentially impossible to entirely capture the magnitude of this pullback. In other words, if bitcoin's price declines by 25%, and there are macroeconomic factors to suggest that this decline could further continue, then investors shorting the company would have already lost 25% of the downward movement. Additionally, I don't believe MicroStrategy will realize any losses at the bottom of the pullback. Let's do a quick, back-of-the-envelope, calculation. As I mentioned in the previous section, the company holds 331,200 BTC, at a cost basis of $16.5 billion. Let's assume Bitcoin's price reaches $100k and then it drops by 50% (as a side note, I believe BTC's price will increase above 100k before it drops). With BTC's price at $100k, the market value of its treasuries will reach $33.12 billion, leading to an unrealized gain of $16.62 billion. If we assume BTC's price to decline by 50%, the market value of its treasuries would reach $16.56 billion, which is slightly above the average cost basis of $16.5 billion. In other words, if Bitcoin's price drops by 50%, MicroStrategy's position in Bitcoin would effectively break even, with minimal to no unrealized losses, depending on minor variations in fees. Another risk to my bear thesis could be a successful transformation of the software segment toward cloud-based solutions. In the past quarter, subscription services revenue increased by 33% YoY. Additionally, the company's flagship product, MicroStrategy ONE, is now accessible through the Azure, AWS, and Google Cloud Marketplaces. Therefore, a recovery in its software business could make the company more attractive to investors, potentially leading to a further increase in its share price or, at the very least, softening the impact of the next bitcoin price pullback. Conclusion To wrap up, I rate MicroStrategy as a sell, although I haven't personally taken a short position in the company yet. In my view, the company's share price behaves much like a 2x leverage on bitcoin (at the very minimum). This is not a surprise, considering the 331,200 bitcoins in its treasury. History shows that bitcoin corrections typically range between 30%-50%. Therefore, a pullback of this magnitude could result in a 60% haircut in the company's share price, even under conservative assumptions. On top of that, the software segment is a financial drag, reporting a $48.08 million operating loss in the first nine months of 2024. Nevertheless, I believe the biggest risk to my bear thesis is the inability to predict the exact timing of Bitcoin's next significant pullback. If the next pullback is, say, 40%, I wouldn't consider shorting the company until Bitcoin's price has already dropped by 15%-20%. This means missing out on half of the pullback. Another risk could be a turnaround in its software segment, as the company is pivoting toward cloud-based solutions, with positive results already seen in the past quarter.  To conclude, I rate this company as a sell. I could revise my rating as a strong sell, once I see clear signs of a pullback in bitcoin's price. It is only then that I will begin shorting the company. Right now, considering Bitcoin's strong momentum, I believe it is too risky to start such a position.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2485422663"}