Shares of MicroStrategy (NASDAQ: MSTR) experienced a notable decline this week, dropping approximately 15% according to data from S&P Global Market Intelligence. This downturn aligns closely with the recent drop in Bitcoin prices, which fell by nearly 20%. MicroStrategy, heavily invested in Bitcoin, finds its stock now closely intertwined with the volatile cryptocurrency market. Various analysts have pointed out the challenges MicroStrategy faces as it ramps up its convertible notes and debt offerings to continue purchasing more Bitcoin.
This significant price drop witnessed last week is not merely coincidental. When Bitcoin prices plummet, as they have recently, it adversely affects the stock price of MicroStrategy. The shares, which had surged almost 163% over the past year alongside Bitcoin's rise, are now facing intense scrutiny as investors rush for the exit doors amid fears of potential losses.
Indeed, the company previously adjusted its corporate strategy to focus on accumulating Bitcoin, betting heavily on the asset's long-term stability and growth potential. While this strategy yielded high returns during Bitcoin's bullish run, the tides have turned somewhat with the most recent statistics showing Bitcoin’s value declining sharply.
To fund its Bitcoin purchasing spree, MicroStrategy recently took on new debt and has made extensive sales of common stock. Notably, back in February, the company issued $2 billion of 0% interest rate convertible notes due by 2030. This financing helps MicroStrategy maintain its aggressive acquisition tactics but poses additional risk concerning the company’s balance sheet.
Specifically, the strategy involves the company utilizing at-the-money (ATM) offerings to issue new shares consistently. Over the last three months of 2024, MicroStrategy has reportedly sold off $15.3 billion worth of common stock to increase its Bitcoin holdings. Following this aggressive buying, MicroStrategy's current tally holds approximately 447,470 Bitcoins. Nevertheless, there is growing apprehension on whether MicroStrategy will continue to be favored by investors.
Despite the stock price tumble, some analysts remain optimistic about MicroStrategy's future. For example, statements from research firms highlight varying perspectives on the stock's potential recovery. Keefe, Bruyette & Woods issued coverage with an "outperform" rating, setting forth lofty price targets reaching as high as $560 per share. Benchmark has reaffirmed its "buy" rating, projecting even higher price targets up to $650. Conversely, institutions such as TD Cowen and Cantor Fitzgerald have upped their price targets considerably within recent months.
Current statistics reveal MicroStrategy's market cap rests at approximately $61.23 billion, with the stock linked to volatile Bitcoin's market movements. Its 50-day moving average price hovers around $331.44, indicating strong speculative trading, especially during upward swings and downward plunges. Recent performance metrics also depict troubling signs, including the company's negative net margins and negative return on equity figures.
While some institutional investors have taken the opportunity to increase stakes, including Allspring Global Investments Holdings LLC and Assenagon Asset Management S.A., the broader market remains cautious. About 59.84% of MicroStrategy shares are currently owned by institutional investors, reflecting widespread corporate trust yet considerable risk.
The consensus rating presently holds at "Moderate Buy" among Wall Street analysts, with targets mapped out to approximately $536.90. This fluctuates distinctly from the current market price, presenting potential disparities for those considering entering or increasing their positions.
Overall, MicroStrategy’s future remains uncertain as it navigates the turbulent waters of cryptocurrency investment and market demands. For investors weighing the stock as potential buy candidates, discernment will play a pivotal role amid this volatile yet potentially lucrative investment arena.