Bitcoin and Business Intelligence: MicroStrategy's Path to Success

Bernstein analysts provide insights into MicroStrategy's Bitcoin-centered strategy, which is considered unique and continues on a growth trajectory. With an impressive upward outlook of 49% to the price target of $600, they reaffirm their positive assessment of the company. MicroStrategy, originally known for its business intelligence software, has restructured itself into a Bitcoin treasury firm since 2020. The company executed this move by utilizing its resources - consisting of cash, debt, and equity - to increase its Bitcoin holdings. The company now holds 386,700 BTC, which represents 1.83% of the global Bitcoin supply. Bernstein describes this strategy as an "active, leveraged long-only Bitcoin acquisition model." A key aspect of MicroStrategy's strategy is the issuance of long-term convertible bonds to finance Bitcoin purchases. With controlled leverage of around 30% of the Bitcoin net asset value (NAV), the risk during price declines is minimized. The company successfully mitigated risk during the price decline of 2022 through equity raising and leverage reduction. When asked about the "Bitcoin yield," Michael Saylor explains that it should be viewed as the annual growth of Bitcoin per diluted share. With an impressive growth rate of ~25% since 2020, the company has increased its BTC holding per share through strategic issuances. Another topic is the MSTR premium over Bitcoin NAV observed by analysts. Currently, MicroStrategy is trading at a premium of 189%, significantly above the historical average of 61%. This premium is justified by the leveraged Bitcoin exposure and the active management by the company, characterized by efficient scaling of holdings. Institutional investors and hedge funds are important buyers of MSTR convertible bonds. These offer a chance for Bitcoin-linked added value with reduced risk and have significantly outperformed the U.S. convertible bond index in 2024.