MicroStrategy (MSTR 3.38%), a developer of data mining and analytics software, made a lot of investors millionaires shortly after its public debut on June 11, 1998. It went public at a split-adjusted price of $60 per share and eventually skyrocketed to an all-time high of $3,130 during the peak of the dot-com bubble on March 10, 2000.
Today, MicroStrategy's stock only trades at about $480. A $20,000 investment in its initial public offering (IPO) would have blossomed to $1.04 million before shrinking back to $160,000. That pullback is disappointing, but that eight-bagger gain still outperformed the S&P 500 -- which would have turned the same investment to $140,000 after including reinvested dividends.
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However, MicroStrategy probably wouldn't have outperformed the market if it hadn't started hoarding Bitcoin (BTC -2.37%) over the past 3 1/2 years. That abrupt shift drew a lot of attention away from its slower-growth software business, and Bitcoin's rebound over the past 12 months caused its stock to more than double.
Can MicroStrategy's stock continue rallying and turn a new $20,000 investment into over $1 million again over the next two decades? Or are investors better off buying Bitcoin directly or investing in higher-growth tech companies, instead?
MicroStrategy is still a slow-growth company
MicroStrategy initially gained a lot of attention when big companies like McDonald's started using its data-crunching software. But over the past two decades, it faced tougher competition from cloud-based analytics companies like Salesforce, integrated analytics tools in public cloud platforms like Amazon Web Services (AWS) and Microsoft Azure, and smaller mobile business intelligence companies like Domo.
MicroStrategy tried to keep up by divesting some of its older businesses and expanding into the mobile and cloud markets. But from 2010 to 2020, its revenue rose at a sluggish compound annual growth rate (CAGR) of 0.6%.
Its revenue rose 6% in 2021 as it lapped its slowdown during the pandemic but dipped 2% in 2022. Analysts anticipate 1% revenue growth in 2023 as the company's rising subscription revenue gradually offset declining license and support revenue.
Its transition to a Bitcoin hoarder brought back the bulls
For many years, MicroStrategy seemed destined to become an also-ran in the saturated enterprise software space. But in August 2020, its co-founder and then-CEO Michael Saylor directed it to start hoarding Bitcoin.
As a result, its Bitcoin holdings swelled from $250 million to $4.7 billion by the end of the third quarter of 2023. That's nearly half of MicroStrategy's current enterprise value of $9.7 billion and dwarfs its $45 million in cash and equivalents.
That transition initially spooked investors for three reasons. First, Bitcoin was highly volatile. The token's price plunged from its record high of nearly $65,000 in late 2021 to $16,000 by the end of 2022 -- but bounced back to about $43,000 over the past year.
Second, the company's massive impairment costs from those purchases caused it to turn unprofitable on a generally accepted accounting principles (GAAP) basis over the past three years. That seemed like a dangerous strategy for a company that was already shouldering $2.2 billion in long-term debt and a debt-to-equity ratio of 3. Lastly, MicroStrategy's Bitcoin strategy seemed like a desperate 11th-hour bid that didn't meaningfully strengthen its core business.
Despite all of those flaws, Bitcoin's rising price over the past year still brought a stampede of bulls back to MicroStrategy's stock. But its enterprise value is getting a bit overheated at 19 times this year's sales.
Can MicroStrategy produce millionaire-making gains?
Even if MicroStrategy can maintain those high valuations, it would need to grow its revenue at a CAGR of 22% over the next 20 years to turn a $20,000 investment into $1 million. It probably can't achieve that with its core software business alone.
But if Bitcoin's price skyrockets over the next 20 years, the company's Bitcoin holdings could drive its stock price a lot higher, even if it generates anemic revenue growth. Coin Price Forecast estimates Bitcoin's price might reach $240,000 by the end of 2035, while Ark Invest's Cathie Wood claims its price will eventually hit $1.5 million by 2030. The investment giant Fidelity is even more bullish: It expects Bitcoin's price to hit $100 million by 2035 and $1 billion by 2038.
We should be skeptical of those bullish forecasts, but multibagger gains for Bitcoin over the next 20 years could still turn MicroStrategy into a millionaire-maker stock. The company could also liquidate some of its Bitcoin to strengthen its core business with bold investments and reduce its debt.
That said, I think it's smarter for investors to directly buy Bitcoin or one of the new Bitcoin ETFs instead of investing in MicroStrategy's wobbly, capital-intensive, and highly leveraged business. Simply put, MicroStrategy's stock might eventually make you a millionaire -- but there are clearer and simpler ways to achieve that goal.
