"Exceptionally High" MicroStrategy Share Price Is Driven By Debt-Financed BTC Holdings, Investment Firm Says

“Exceptionally High” MicroStrategy Share Price Is Driven By Debt-Financed BTC Holdings, Investment Firm Says

Updated: 29 March 2024

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MicroStrategy’s share price, which is mainly driven by its Bitcoin (BTC) holdings, is “exceptionally high“ and “unjustifiable,” argues investment firm Kerrisdale Capital.

Investors have inflated MicroStrategy’s premium as a result of the company’s BTC holdings. The majority of this BTC was bought through debt financings, equity linked convertible notes and ATM equity offerings, said the firm in a Mar. 28 analyst note.

Calling the company’s use of leverage to purchase more BTC “intelligent” is flawed logic, it added.

Bitcoin ETFs Could Make MicroStrategy Redundant

The launch of Spot Bitcoin ETFs (exchange-traded funds) in the U.S. might reduce the need for investors to trade MicroStrategy stocks to gain exposure to Bitcoin, the firm added.

MicroStrategy (MSTR) no longer presents investors with “a rare, unique way to gain access to Bitcoin,” it said in the note.

Kerrisdale Capital said that MicroStrategy’s “sleepy software analytics business” only makes up 3% of the company’s collective value. Other reasons that argue in favor of MSTR’s value, such as the ability to buy more BTC using the software company’s cash flows, its access to liquidity, the lack of management fees and how easy it is to trade MSTR are all “weak,” the note added. Analysts at the investment firm therefore said they “ are short shares of MicroStrategy.”

Michael Saylor Maintains A Positive Outlook For The Company

Michael Saylor, the CEO at MicroStrategy, has continually expressed his confidence in the company’s ability to remain attractive to investors. One thing that gives MicroStrategy an edge over spot Bitcoin ETFs, apart from not charging fees, is the leverage it offers investors, Saylor said in a December interview with Bloomberg TV.

#Bitcoin is Better. pic.twitter.com/UkZR7t6UEP

— Michael Saylor⚡️ (@saylor) March 28, 2024

More recently, the CEO also revealed that the company will be rebranded as a “Bitcoin development company.” He called this a “natural decision,” in a Feb. 12 interview with CNBC, given the success of MicroStrategy’s Bitcoin investment.