Description
Given the imminent approval of bitcoin ETFs by the SEC, I am providing the analysis needed to execute a trade pairing a short sale of shares of MicroStrategy (MSTR) with the purchase of a bitcoin ETF in the ratio of 0.11277 bitcoin per MSTR share.
There has been significant volatility in recent weeks in the price of both MSTR and bitcoin. For example, the premium of MSTR’s enterprise value over its SOTP value has been as high as 48% in January 2024. While currently at 20%, the premium could expand in the short term back to those levels, particularly as bitcoin ETFs are approved by the SEC. Part of my objective here is to provide updated numbers and a calculation tool so that VIC members can calculate for themselves what the premium is at any given time when considering a position.
Thesis
Due to the relative difficulty of purchasing bitcoin for the average investor, I believe MSTR has served as a Bitcoin investment proxy, leading it to trade at a significant premium to the combined value of its software business and its bitcoin holdings. As several bitcoin ETFs become available in the very near future, I believe this premium will dissipate, and may even turn into a discount, similar to some closed end funds. My view is supported by the recent filing by Michael Saylor, MSTR’s CEO, to sell a portion of his MSTR stock for the first time in several years.
Business
Paraphrasing their 10-K, MicroStrategy pursues two corporate strategies in the operation of its business. One strategy is to acquire and hold bitcoin and the other strategy is to grow their enterprise analytics software business.
MSTR’s bitcoin acquisition strategy generally involves acquiring bitcoin with their liquid assets that exceed working capital requirements, and from time to time, subject to market conditions, issuing debt or equity securities or engaging in other capital raising transactions with the objective of using the proceeds to purchase bitcoin.
In its enterprise analytics software and services business, MSTR has focused on empowering organizations to leverage their data by providing software and services that provide enterprise users with actionable insights.
All calculations below are in $ millions, except per share and per bitcoin prices.
Current value of MSTR software business
| |
|
|
|
Software business
|
12/31/22
|
LTM 9/30/23
|
|
Revenue
|
$ 499.3
|
$ 504.3
|
|
Gross profit
|
396.3
|
395.9
|
|
EBITDA
|
|
|
| |
|
|
| |
|
|
|
Oper Income
|
10.5
|
8.3
|
|
D&A
|
10.9
|
13.4
|
| |
21.4
|
21.6
|
|
Share based comp
|
63.6
|
66.9
|
|
Adjusted EBITDA
|
85.0
|
88.5
|
Given that business is exhibiting little to no growth, I have generously valued it at $1 billion.
|
Current value of MSTR bitcoin holdings
|
|
|
| |
|
|
|
| |
Number of bitcoins
|
|
|
9/30/23
|
158,245
|
position
|
10Q
|
|
10/1//23 - 10/31/23
|
155
|
purchases
|
3Q earnings press release
|
|
11/1/23 - 11/29/23
|
16,130
|
purchases
|
8-K
|
|
11/30/23 - 12/26/23
|
14,620
|
purchases
|
8-K
|
| |
189,150
|
position
|
calculated
|
| |
|
|
|
|
Price per bitcoin
|
$ 45,880
|
1/9/23
|
|
| |
|
|
|
|
Value of bitcoin holdings
|
$ 8,678
|
|
|
|
Current SOTP of MSTR
|
|
|
Software business
|
$ 1,000
|
|
Bitcoin holdings
|
8,678
|
| |
$ 9,678
|
|
Current EV of MSTR
|
|
|
|
| |
|
|
|
|
Current gross cash of MSTR
|
|
|
|
9/30/23
|
$ 45
|
position
|
10Q
|
|
10/1//23 - 10/31/23
|
(5)
|
bitcoin purchases
|
3Q earnings press release
|
|
11/1/23 - 11/29/23
|
591
|
stock issued
|
8-K
|
|
11/1/23 - 11/29/23
|
(593)
|
bitcoin purchases
|
8-K
|
|
11/30/23 - 12/26/23
|
610
|
stock issued
|
8-K
|
|
11/30/23 - 12/26/23
|
(616)
|
bitcoin purchases
|
8-K
|
| |
$ 32
|
position
|
calculated
|
| |
|
|
|
| |
|
|
|
|
Current MV of MSTR
|
|
|
|
| |
|
|
|
|
Current shares outstanding of MSTR
|
|
|
|
9/30/23
|
14,507
|
position
|
10Q
|
|
11/1/23 - 11/29/23
|
1,190
|
stock issued
|
8-K
|
|
11/30/23 - 12/26/23
|
1,077
|
stock issued
|
8-K
|
| |
16,774
|
position
|
calculated
|
| |
|
|
|
|
Share price
|
$ 567
|
|
|
| |
|
|
|
|
Market value
|
$ 9,511
|
|
|
|
Net cash
|
(32)
|
|
|
|
Total debt
|
2,191
|
9/30/23
|
10Q
|
|
Enterprise Value
|
$ 11,670
|
|
|
| |
|
|
|
| |
|
|
|
|
Premium (EV over SOTP)
|
21%
|
|
|
| |
|
|
|
| |
|
|
|
|
Bitcoin per share of MSTR
|
0.011277
|
|
|
This analysis ignores any potential taxes on gains on the sale of bitcoin by MSTR, which would reduce the SOTP and make the premium larger.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.
Catalyst
With the proliferation of low cost bitcoin ETFs, I expect the premium to shrink and possibly turn into a discount, similar to closed-end funds