Is This Dot Com Survivor Finally Doomed? - InvestingChannel

Is This Dot Com Survivor Finally Doomed?

Proprietary Data Insights

Financial Pros Top Blockchain Stock Searches This Month

Rank Name Searches
#1 Coinbase Global Inc 244
#2 Square 167
#3 Riot Blockchain Inc 93
#4 Marathon Digital Hldgs Inc 28
#5 Microstrategy 22

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Technology

Is This Dot Com Survivor Finally Doomed?

Markets haven’t been kind to cryptocurrencies lately.

And many of the related stocks saw their share values decimated as a result.

But it was the 5th most searched result on the list above that caught our attention.

You see, of the companies listed above, only Microstrategy’s core business has nothing to do with blockchain.

Michael Saylor is the CEO of MicroStrategy (MSTR), a software company he founded in 1989, and took public in 1998. It’s one of the few survivors of the dot com bubble, but it now faces greater challenges. 

You see, back in the summer of 2020, MicroStrategy started accumulating bitcoin. And prior to this year, the move looked genius. 

However, since bitcoin has declined substantially, so has MicroStrategy’s stock price. 

Is now the time to get into MSTR, or is the bitcoin collapse the last straw for Microstrategy?

MicroStrategy’s Business

MSTR provides enterprise analytics software and services worldwide. Some of its customers include Visa, ServiceNow, Porsche, Crate&Barrel, Mass Mutual, and Pfizer.  

Its enterprise platform provides a modern analytics experience by delivering insights across a series of devices to its users through hyperintelligence products, mobility features, visual capabilities, custom applications, and so much more. 

The firm has three areas of focus. 

First, the company wants to be the best modern, open, solution for enterprise analytics. 

Second, develop differentiated, developer-focused solutions for embedded analytics and technology companies. 

And third, provide leading enterprise cloud analytics products and services. 

While MSTR has been incorporated since 1989, it wasn’t until the summer of 2020 that it started to receive mainstream attention. That’s when the firm started investing heavily in bitcoin. 

As of Q1 of 2022, MSTR had 129,218 bitcoin. The firm added 4,827 bitcoin in Q1 2022, at an average price of $44,645. 

 

Given its massive bitcoin exposure, the company stock often moves in tandem with bitcoin. And with bitcoin down substantially in 2022, it’s no surprise that MSTR is down more than 70% year-to-date. 

The firm faces the threat of a margin call if bitcoin prices continue to decline. According to a company filing, the approximate average purchase price for their bitcoin is $30,700. At one point on June 14th, bitcoin dropped to around $20,000, representing a $1 billion paper loss for MSTR. 

Financials

MSTR has not been able to grow its revenues for years. In fact, its revenues are smaller than they were ten years ago. 

While (YoY) growth for the most recent quarter was 3.03%, it’s significantly worse than the sector median of 20.47%. Over the last 5-years, MSTR has seen its revenues grow an average of -0.33%

The firm has had a negative EPS, negative net income, and negative free cash since 2020.

To make matters worse, MSTR has total debt of $2.44 billion. It has cash of $92.68 million, with a market cap of around $1.72 billion.

MSTR has a current ratio and quick ratio below 1. In other words, the firm doesn’t have enough assets to cover its short-term debt. This is obviously troubling to hear if you are a prospective investor. 

Valuation

MSTR is not a profitable company, therefore has no P/E ratio, and a negative EPS. In fact, its EPS this year is -87.10%

The firm’s return on assets is -17.40% and its return on equity is -93.5%

One of the few bright spots for MSTR is its gross profit margin, which stands at an impressive 81.30%

Of course, with a net income margin of -109.68%, it is going to scare off a lot of investors. 

It doesn’t help that revenue growth has been anemic, and EBITDA growth (YoY) is -42.85%

 

Our Opinion – 3/10

MSTR shares are down more than 70% year-to-date. While the firm has a legitimate business with world-class customers, its stock price is heavily tied to the performance of bitcoin. 

In our opinion, there are better ways to play bitcoin than owning shares of MSTR. For example, you can trade bitcoin ETFs, futures, or even the actual crypto itself. 

You want to stay away from companies that are experiencing declining revenues, net income, and net profit margin. 

And that’s why we are not touching MSTR, even though we think bitcoin is oversold here. 

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