Business intelligence expert MicroStrategy (MSTR +1.70%) still runs a successful software business. I know, that's easy to forget in an era where founder and chairman Michael Saylor is leaning heavily into buying Bitcoin (BTC +1.24%) -- it makes sense to think of MicroStrategy as an alternative way to own the largest cryptocurrency.
Let's take a look at MicroStrategy's Bitcoin business. Does the software division even matter anymore?
MicroStrategy's Bitcoin focus
Saylor isn't shy about the importance Bitcoin holds in MicroStrategy's operations. The recent third-quarter report started with two Bitcoin-related bullet points before moving on to traditional financial metrics such as revenue and growth trends on the software side. Searching that document, you'll find 28 mentions of "Bitcoin" and just 15 instances of "revenue" or "revenues."
For instance, the company added 6,067 Bitcoins during the third quarter, boosting the total holdings to 158,400 coins as of Oct. 31, 2023. I'm sure there are more Bitcoins on that balance sheet by now; MicroStrategy just hasn't posted any updates since then.
The coins were acquired at an overall cost of $4.69 billion over a three-year period. MicroStrategy's Bitcoin holdings are worth $6.99 billion at today's market price.
Michael Saylor looks like a genius in times like these, when Bitcoin's street price is higher than the average purchase price. You'll see it in MicroStrategy's stock price, too. The stock rose 355% over the last year, thanks to a 157% increase in Bitcoin's market price.
MicroStrategy's stock: Riding the Bitcoin roller-coaster
The reverse is also true, of course. When Bitcoin is down, MicroStrategy reports financial losses and the stock price drops. Michael Saylor becomes a headline-writing punching bag under those circumstances.
All in all, owning MicroStrategy stock has been a solid proxy for holding Bitcoin directly since Michael Saylor's digital investment started. The price swings aren't always exactly aligned but the long-term relationship is pretty clear:
Mind you, the software operation serves as a solid foundation for this exploration of digital assets. MicroStrategy's software license sales rose 16% year over year in the third quarter, along with a 28% uptick in subscription service revenue.
There is clearly a robust demand for the company's business intelligence tools, which now includes a generative AI interface to help clients make the most of the underlying data analysis tools. MicroStrategy's platform is integrated with the leading cloud computing platforms and the customer list includes household names such as Sony, Walt Disney, and Visa. This Tableau rival is no joke.
The software business you forgot
Sorry about the whiplash risk, but here's another plot twist. Despite the healthy results in MicroStrategy's business intelligence software, the company is investing all of the resulting profits in more Bitcoin -- and then some.
Here's one way to look at it. MicroStrategy generated $11.5 million of cash from operations in the first three quarters of 2023. The cash profits were culled from $372 million of top-line revenues in the same period.
And Saylor's crew raised $824 million of extra cash by selling freshly printed stock shares. The number of issued shares rose by 35% over the last year, diluting the value of existing shareholder stakes by the same amount. These market-moving effects are accounted for in the price charts above, which goes a long way toward explaining how a company that keeps buying more Bitcoin effectively moves in tandem with the digital currency itself. MicroStrategy's cash-raising efforts undermine the benefits for stockholders.
But that's what it takes to keep the Bitcoin flow going. The company invested another $688 million in digital assets across the first three quarters of 2023.
NASDAQ: MSTR
Key Data Points
MicroStrategy's promising but risky stock
There you have it. MicroStrategy has become a Bitcoin wallet with a successful but hugely overshadowed software business. The rise and fall of Bitcoin's value dictates how MicroStrategy's business performs as a whole, and you already saw how that translates into a Bitcoin-synchronized price chart.
So if you expect big things from Bitcoin in the long run, but your brokerage only offers traditional asset classes like stocks and exchange-traded funds, MicroStrategy can serve as a substitute for the real thing. You might also expect the charting lines to separate in the long run as MicroStrategy's need to raise additional cash goes away -- a possible effect of sustained Bitcoin price gains.
Then again, MicroStrategy's all-in tactics also add a lot of risk. This crypto winter may be thawing, but what if the next gets even colder and lasts longer? Or, even worse, what if Bitcoin never turns out to be the future of financial assets at all? MicroStrategy's balance sheet could collapse in a hurry.
In other words, MicroStrategy may look like a pound-for-pound Bitcoin alternative but both the potential upsides and the downside risks are highly amplified versions of the original cryptocurrency. Personally, I prefer owning actual Bitcoin tokens or a simpler alternative such as the Grayscale Bitcoin Trust. Feel free to dabble in MicroStrategy's stock, just be careful out there.
