MSTR stock price prediction: Bitcoin gamble rattles investors

Now the leading publicly traded holder of Bitcoin, MicroStrategy has some hurdles to overcome

MicroStrategy logo under Bitcoin logo on a bitcoin logo background – Photo: Shutterstock                                 
Tesla who? MicroStrategy’s Bitcoin coffers are unsurpassed. Is that good or bad? – Photo: Shutterstock
                                

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The simple answer to the question “what is MicroStrategy” would be that this Virginia-based technology company specialises in business intelligence, mobile software and cloud-based services. But there is more to it than just that. It has became the world’s largest publicly-listed corporate owner of Bitcoin, following a multi-billion-dollar spending spree since 2020 spearheaded by chief executive officer Michael Saylor.

MicroStrategy is listed on the Global Select segment of the NASDAQ exchange under the MSTR ticker. In the following article, we assess MicroStrategy’s latest position before heading into the MSTR stock price prediction.

Fears over a margin call

As previously reported at Currency.com, MicroStrategy took out a three-year, $205m term loan to boost its Bitcoin holdings, making it the largest publicly-traded holder of BTC, surpassing even Tesla. The gutsy move to open a Bitcoin-collateralised loan was disclosed in a 29 March press release which listed California-based financial services institution Silvergate Capital Corporation as the issuer.

At this stage, despite volatility, Bitcoin was still trading above $45,000. On 15 June, Bitcoin had fallen to less than half that, and the supposed inflation hedge loomed precariously close, dropping below the $20,000 mark. As of 12:29 BST (UTC +1) on 16 June, BTC was valued at $21,098 a piece, according to CoinMarketCap.

MicroStrategy surely awaits a reversal with bated breath. The initial loan-to-value (LTV) ratio was set at 25%, while the company agreed to maintain an ongoing LTV ratio of 50%. The initial collateral value of 19,466 BTC was worth $820m when the loan was accepted. This “essentially allows for an approximately 50% drop in Bitcoin prices,” deduced president Phong Le in the company’s first-quarter financial webinar for 2022. On 14 June, that figure was surpassed. On 15 June, the LTV ratio was slightly better at 48.57%.

Where does this leave MicroStrategy’s loan? 

What is the strategy to ward off a margin call? Despite the precarious situation, MicroStrategy stated that it had not received a margin call warning from Silvergate Capital, as reported by Reuters. “The margin call thing is much ado about nothing,” CEO Saylor, who is also MicroStrategy’s founder, told CNBC, suggesting that BTC would need to fall as low as $3,500 before more collateral would be required. Saylor took to Twitter to provide further reassurances for investors, which included structuring the company’s balance sheet so it could “hold through adversity”.

Responding to this tweet, famed stockbroker and CEO of Euro Pacific Capital Peter Schiff had some choice words: “Volatility is one thing. This is a collapse. Did you anticipate something like this?” Schiff tweeted, adding: “If so, why buy so much Bitcoin in the first place? Why encourage others to take on debt to buy Bitcoin if you anticipated this type of price collapse?”

During the financial webinar, Le stated that “we are also allowed to proactively manage the LTV ratio by posting any desired value of additional value”. MicroStragegy also has a $5m cash reserve that can be used for interest repayments, but only for the last six months of the loan term.

Breaking down MicroStrategy’s Bitcoin holdings

According to MicroStrategy’s Q1 2022 financial results, the company’s 129,218 BTCs are split between the MicroStrategy entity and the MacroStrategy subsidiary. The entirety of MicroStrategy’s 14,109 supply is pledged as collateral on secured loans due in 2028. The vast majority (115,109 BTC) is actually held by the MacroStrategy subsidiary, with 19,466 pledged to Silver Capital’s three-year loan. The remaining 95,643 are unpledged and unencumbered.

Graph of MicroStrategy’s current Bitcoin holdings
The MacroStrategy subsidiary holds most of MicroStrategy’s BTC holdings – Source: MicroStrategy first quarter 2022 financial results

MicroStrategy’s BTC holdings have steadily increased since Q3 2020. Initially, 100% of holdings was held by the parent company, before transferring the majority to the company’s MacroStrategy subsidiary in Q2 2021. At Bitcoin’s all-time high in November 2021, MicroStrategy’s BTC holdings were worth over $8.2bn.

Graph of MicroStrategy’s Bitcoin holdings since 2020, next to BTC price chart
MicroStrategy’s BTC supply exceeded 100,00 in 2021 – Source: MicroStrategy first quarter 2022 financial results

In MicroStrategy's Q1 2022 reports, the company posted digital asset impairment losses of $170.1m. In fact, these impairment losses outstripped total GAAP revenue losses of $170m. Total GAAP losses were -142%, a 9% year-on-year improvement.

MSTR stock price prediction

MicroStrategy (MSTR) opened 2022 with an exchange value of $550.61. As of the close of trade on 15 June at 16:00 EDT (UTC -4), the MicroStrategy stock price at close had fallen by nearly 69% to trade at $171.34. The company’s market capitalisation was $1.936bn and had a negative earning per share (EPS) of -$53.33 trailing twelve months (TTM). (Source: Yahoo Finance.)

According to Yahoo Finance’s MicroStrategy stock price prediction, EPS will continue to underwhelm. Four analysts have a Q2 projection of -$0.50. The yearly EPS estimate is currently pegged at -$10.78. In terms of revenues, Yahoo Finance’s analysts expect $123.3m for Q2 and a total 2022 posting of $506.12m.

The CNN Business MicroStrategy stock price prediction presents a median 12-month target of $453 among three analysts. This target represents a 163.76% increase. The consensus sales estimate for 2022 is $506.1m. Analysis expect a negative EPS of -$10.96.

As tech stocks continue to be volatile in an ongoing bear market, sentiment is not overly positive for the MSTR stock price target. Compounding the company’s issues are its massive Bitcoin holdings and precarious lending position with Silvergate Capital.

But MicroStrategy may very well overperform in the coming months. Regardless of your position, Currency.com highly recommends seeking out independent, third-party advice before opening a position on MSTR stock. All MSTR stock price predictions presented in this article are speculative and subject to change.

FAQs

MSTR is the ticker symbol for Virginia-based software company MicroStrategy.

Microstrategy holds 129,218 BTC, the majority of which is held by its MacroStrategy subsidiary.

MSTR is down for a number of reasons. The US stock market is in a bear market. Compounding this is the fact that MicroStrategy holds large sums of Bitcoin, a digital asset that has lost more than 50% of its value in 2022. Warnings of a $205m margin call have also spooked investors.

MicroStrategy focuses on business intelligence, mobile software, and cloud-based computing services.

MicroStrategy began buying Bitcoin in the third quarter of 2020 at the behest of CEO Michael Saylor. The company has continued to increase its supply since. As of 15 June, MicroStrategy owned 129,218 BTC.

Further reading

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