Text size
Business-intelligence software firm Microstrategy owns more than 90,000 Bitcoin. Canaccord Genuity analyst Joseph Vafi is bullish on the stock and cryptocurrency.
Dreamstime
Microstrategy
stock is trading higher Friday after Canaccord Genuity analyst Joseph Vafi picked up coverage of what amounts to a giant bucket of Bitcoin with a Buy rating and $920 target price, implying a potential 33% gain from Thursday’s close at $690.12.
A 32-year old business-intelligence software company, Microstrategy (ticker: MSTR) last year began dabbling in Bitcoin, and has since fully embraced the cryptocurrency in a way that few other public companies have. To date, Microstrategy has purchased 91,600 Bitcoin, at an average cost of $24,000 each. In February, the company raised $1.9 billion via a pair of zero-coupon convertible note offerings, and sunk all of the proceeds into new Bitcoin purchases.
Friday morning, Bitcoin was quoted at $58,518.11, which values the Microstrategy virtual hoard at $5.4 billion, or about 80% of Microstrategy’s $6.8 billion market cap.
Vafi argues that, depending how you value the core Microstrategy software business, investors are actually granting the company a higher value for its Bitcoin stash than their market value, given the scarcity of options for equity investors to bet on the cryptocurrency.
“From here, we believe the primary drivers for Microstrategy shares in descending order will be the spot price of Bitcoin, investor sentiment around the digital asset, market bet and performance in the core business,” Vafti writes in a research note. “We note that higher-beta equity names have seen material pullbacks recently, while the price of Bitcoin has remained resilient.” He says that the result is that the “scarcity premium” granted the company for its unusual crypto bet has narrowed. “We believe this is an attractive setup for at least some upward scarcity premium revaluation over time,” he writes.
As Vafi notes in his report, to buy Microstrategy shares, you have to believe that the price of Bitcoin is headed higher—and Vafi is a Bitcoin bull.
“The core business at MicroStrategy represents a solid investment in enterprise software with its own catalysts at play; and without the core software businesses, [the company] would have never been able to accrue 91,600 Bitcoins via innovative use of attractively priced convertible offerings,” he writes. “But at this point Microstrategy’s Bitcoin holdings represent the majority of enterprise value and in our view this is also the growthier side of the investment case a well. And we are positive on Bitcoin. While Bitcoin is by no means what we would call a mainstream asset class at this point, we nevertheless cannot but believe that its price is biased higher over time.”
Microstrategy stock on Friday is up 3.5%, to $714.18.
Write to Eric J. Savitz at eric.savitz@barrons.com
