MicroStrategy (NASDAQ:MSTR) Slips on Troubles in Bitcoin

MicroStrategy (NASDAQ:MSTR) has been a strange entry in the market of late, because most of the news around this company hasn't been focused on its products and services, or what moves it makes in its overall market, which is mainly focused on analytics. No, much of the splash MicroStrategy has been making of late focuses on one of its core holdings: a massive stockpile of bitcoin. As the price of this new security fluctuates, so too does MicroStrategy's overall fate.

One Big Pile of Bitcoin

Recently, MicroStrategy announced a development that might be considered downright shocking, depending on who you talk to. Back in late December, the company picked up another jolt of bitcoin, taking advantage of a dip in prices to load up still further. At the time, that elevated MicroStrategy's bitcoin holdings to 70,470 bitcoin.

That may not immediately strike a chord, so let's simplify; this not only made MicroStrategy the fifth-largest holder of bitcoin on the planet, it also put MicroStrategy one step ahead of the US government itself, which currently holds around 69,420 bitcoin.

In perhaps a more unusual stroke, word surrounding the sale at the time pointed out that the company offered a $400 million debt security sale, the proceeds of which would be used to buy more cryptocurrency, which the company promptly did. The company actually bought over $1 billion worth of bitcoin throughout 2020, which makes its hoard a particularly noteworthy part of the company's overall operations.

The Analysts Are Less Convinced

That big haul of bitcoin doesn't seem to have much impact on the broader analyst pool. Based on our latest research, the company is currently rated a “hold”, and the ratios are slipping. Six months ago, the company had one “hold” rating to its credit. That held true three months ago, and then, a month ago, trouble started. While the company picked up a “buy” rating to go with that “hold”, it also picked up two “sell” ratings, and that's where it stands today.

The price target, however, has steadily increased, likely owing at least someone to that big bitcoin hoard. Six months ago, the price target was at $135, and went to $140 three months ago. A month ago it was at $217.50, and that's where it remains today. Interestingly, though, that $217.50 represented a 10.84% downside from share prices at the time, while today, it represents 59.35% downside. Modifications to price targets have been fairly recent but small in number; Smith Barney Citigroup hiked its target from $200 to $250, and Citigroup Inc. did likewise. Both, meanwhile, dropped their rating from “neutral” to “sell” at the same time, December 8, 2020.

But What About the Actual Company?

Admittedly, much of the developments around MicroStrategy have focused on its bitcoin holdings. That's not out of line; it's an asset the company holds, like many companies would keep cash equivalents or negotiable securities on hand. Yet it's easy to lose sight of the fact that this is a company that has a line of products and services. Any attempts to gauge its long-term viability, or its chances of producing a short-term bump in share prices, need to focus on these points.

The company is planning to release word on its earnings next week; January 28, in fact, via live video webinar. When it does, it will offer up some word on its enterprise analytics platform, which will likely have at least a few positive aspects to it. How can I tell? The company has 70,470 bitcoin. At today's prices, that's worth a hair under $2.3 billion. The company spent a large portion of 2020 buying bitcoin. It bought nearly $1 billion worth of bitcoin just in 2020. Granted, it launched some debt to do it, but that debt-fueled buying was about $400 million worth. That means the company had to have $600 million on hand to buy bitcoin with, and even if that was all of last year's profits, that's still a decent slug of cash.

The bitcoin is useful. It's drawing a lot of attention MicroStrategy's way, and probably getting a few people asking questions about what the company actually makes, besides bitcoin transactions. The revelation that the company deals in business analytics could actually be a point in its favor; business analytics basically searches a company's entire documented life for usable insights. If people start believing that MicroStrategy applied its own tools to its own operations and what came out of that was “buy a big pile of bitcoin”, that could get other companies interested in what analytics can do for them.

That particular genie is already out of the bottle in many places, though—businesses are increasingly interested in analytics already—so if MicroStrategy is using its bitcoin haul as a way to call attention to its analytics tools, it may be able to cash in on buying bitcoin in two ways