Demystifying Microstrategy and the Recent Bitcoin Bubble
Tags: Investing, Bitcoin, Stocks, Analysis, Finance

Disclaimer

All the info you are about to read is for entertainment purposes only and should not be seen as financial advice.

You know the drill.

Introduction

Let’s face it. None of us heard of Micheal Saylor and Microstrategy before they purchased bitcoin in August 2020.

Most of us didn’t even care. Then, we suddenly hear about them purchasing bitcoin in August 2020.

BTC rallying over 400%

The sudden surge of institutional investors and big corporations after bitcoin rallying over 400% from its march crash came as a pleasant surprise for the small crypto market.

Big money finally flowing into bitcoin might be however the most misleading narrative pushed so far.

MSTR crashes more than 90% after the dotcom bubble

A Bit of History

$MSTR stocks plummeted more than 90% since its inception and after failing to deliver on their promises for investors, and honestly failing to innovate in the market.

Unlike what most think, they’re not a hedge fund. They’re a software and BI company. A not-so-good one too.

In July 2017, the company reported a 41% year-over-year drop in both net income and earnings per share (EPS), resulting in its stock crash by 30%.

Figures don’t lie.

Enter Bitcoin

In August 2020, Saylor announced the purchase of $250 million in bitcoin $250 million followed by an additional $175 million worth of BTC one month later.

Hello, bubble!

That’s the same guy that bashed bitcoin in 2013.

My my. How the tables have turned.

Enter the stock market.

Hype pushes the stock price up. Think of it as your standard pump and dump scheme, albeit more sophisticated.

$MSTR stock rose by more than 30% and still pushing.

Shares of MicroStrategy Inc. (NASDAQ: MSTR) tumbled 29.8% in July, according to data provided by S&P Global Market Intelligence , after the enterprise software platform provider reported dismal performance in its second quarter. Investors apparently aren’t optimistic about MicroStrategy’s new three-year growth plan, which mostly depends on spending excess cash flow on new marketing and technology plans. CEO Michael Saylor indicated that operating margins would likely fall as the company focused more on growth, noting that it’s “unrealistic” to expect it to keep its operating margins north of 20% while it’s trying to grow the business. MicroStrategy investors will have to wait for the next several quarters’ results to see how well these plans get implemented, and if management’s ideas are enough to spur new revenue growth.

Moreover, Microstrategy has seen falling revenues for more than a decade.

Its PE ratio skyrocketed in December to more than a whopping 96 (Microsoft is at 38):

A quick google search yields the following: the average P/E for the S&P 500 has historically ranged from 13 to 15.

A company with a current P/E of 25, above the S&P average, trades at 25 times earnings. The high multiple indicates that investors expect higher growth from the company compared to the overall market.

Fine. So what does this all mean?

Well for starters that Microstrategy suddenly became over-valued, especially when it comes to its revenue. Its investors are temporarily happy.

In other words, it’s a bubble waiting to pop. Don’t believe me?

Trillions huh? The entire Gold market is around 9T.

BONUS: The average price purchased is 19.4K. Smart? Not so fast. Even big guys with a lot of money make mistakes. Not to mention that Saylor and his pals were accused of fraud in 2000. Talk about history.

Conclusion

It was indeed interesting how Microstrategy and their recent bitcoin stunt increased the purchasing power of BTC. But like all bubbles, one ought to be more careful when the market is euphoric.