A cursory summary of MicroStrategy (NASDAQ: MSTR) might suggest that the company is an enterprise analytics software and services specialist. However, while the company does derive some revenue from software sales, MicroStrategy is known as a Bitcoin (CRYPTO: BTC) hoarder first and foremost.
MicroStrategy was also recently known for conducting a 10-for-1 stock split, but that's in the rearview mirror now. The current focus is MicroStrategy's ultra-aggressive Bitcoin accumulating strategy, with the company already holding more than 1% of the Bitcoin that will ever be mined.
Even though it's too late to jump on the "MicroStrategy is about to split its stock" bandwagon, this doesn't necessarily mean it's too late to buy MicroStrategy stock. However, investors will need to be on board with the company's hoard -- and be willing to accept MicroStrategy's strategy of raising capital to buy more Bitcoin.
Stock up, earnings down
It's not unreasonable to conclude that MicroStrategy stock is often more closely correlated to the Bitcoin price than to the company's financial performance. For example, MicroStrategy stock roughly doubled year to date even though the company's financials haven't necessarily justified this magnitude of returns.
In 2024's second quarter, MicroStrategy swung to a net loss of $102.6 million or $5.74 per share, as opposed to net income of $22.2 million or $1.52 per share in the year-earlier quarter. On a non-GAAP (adjusted) basis, the company reported a quarterly loss of $0.57 per share, while Wall Street only expected MicroStrategy to lose $0.09 per share.
On the other hand, MicroStrategy's $102.6 million net loss was, in large part, due to a $180.1 million impairment charge on the company's Bitcoin holdings during the second quarter of 2024. Still, it's not encouraging to consider such a large charge, especially compared to MicroStrategy's much more manageable $24.1 million impairment charge from the year-earlier quarter.
However, the $180.1 million impairment charge reflected changes in the Bitcoin price, and this highlights MicroStrategy's limited control over its bottom-line results. If Bitcoin drops, you can bet your bottom dollar that MicroStrategy stock will, too.
Of course, MicroStrategy Executive Chairman Michael Saylor expects Bitcoin to zoom higher and his company's share price to zoom along with it. He's known for making predictions like Bitcoin's market capitalization going to $280 trillion by 2045 and the Bitcoin price hitting $13 million by 2045. If he's right -- or even close to being right -- then it's certainly not too late to grab a few MicroStrategy shares.
Borrowing to speculate
MicroStrategy and Saylor can't be accused of false Bitcoin bullishness, as the company's Bitcoin hoard is now close to $15 billion. Going forward, however, discipline-driven and cost-conscious investors may take issue with MicroStrategy's willingness to fund its Bitcoin-buying habit through debt issuance.
It's not ultra-high-interest debt, mind you. MicroStrategy recently completed an offering of $800 million worth of 2032-maturity senior notes that carry an annual interest rate of 2.25%, which isn't particularly debilitating in the current high interest-rate environment.
Still, some investors might not like the idea of incurring debt to buy a speculative, volatile asset like Bitcoin in the first place. This isn't exactly the Japanese carry trade, but it's certainly risky to a certain extent to borrow money to buy Bitcoin.
Make no mistake about it -- MicroStrategy made its priorities crystal clear, declaring that the company "intends to use the net proceeds from the sale of the notes to acquire additional Bitcoin and for general corporate purposes." So, you'd better be on board with this borrow-and-hoard plan if you intend to "HODL" MicroStrategy stock.
If you're prepared to ride MicroStrategy's speeding, crypto-fueled bus wherever it may take you, then it's not too late to buy MicroStrategy stock. If, however, you'd prefer to choose fiscal fortitude over a borrow-and-spend strategy, it's prudent to take profits on your MicroStrategy shares or simply not buy any in the first place.
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David Moadel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
