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MicroStrategy Bulls Unfazed by Double Dose of Pain

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·5 min read
MicroStrategy Bulls Unfazed by Double Dose of Pain
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(Bloomberg) -- Shares of MicroStrategy Inc. have been hit hard this year as its once-winning approach of being a tech company that also holds billions of dollars in Bitcoin sends investors rushing for the exit. Analysts are holding fast in their bullishness.

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Three of the four brokerages that follow the software company recommend buying the shares, with an average price target that’s more than triple where the stock closed Wednesday, according to data compiled by Bloomberg.

Under Chief Executive Officer Michael Saylor, MicroStrategy has spent about $4 billion on tokens as of March 31. While that was a hot strategy in the pandemic-fueled market boom -- when tech stocks and Bitcoin surged to record heights -- MicroStrategy is now mired in the historic selloff that’s hitting both areas, slumping 69% this year. That’s deeper than the Nasdaq 100 Index’s 29% decline and Bitcoin’s 55% drop.

“MicroStrategy provides equity investors in particular with not only exposure to Bitcoin, which currently they don’t have many efficient ways to access,” said Mark Palmer, an analyst at BTIG with a buy rating. The company also offers an operating business that generates cash with which to buy more Bitcoin, he said.

This isn’t MicroStrategy’s first rollercoaster ride. Its shares soared more than 3,400% during the dotcom bubble and subsequently wiped out all those gains during the collapse. The Covid-19 pandemic, which saw the rise of the retail trader, evoked memories of a similar rally thanks to Bitcoin’s surge: At one point, its shares were up more than 1,200%.

Now, they are on pace for their worst year since 2000, fueled by the crypto rout and bear-market plunge in tech. The Federal Reserve triggered the decline in both by aggressively raising interest rates to cool inflation, fueling concern that the economy is headed for a recession. Just last week, the world’s largest cryptocurrency plunged below $20,000 for the first time since late 2020.

The crypto crash generated losses for Saylor of about $3.5 billion, according to the Bloomberg Billionaires Index. His 2.36 million MicroStrategy shares and options peaked in February 2021, when they were worth nearly $3 billion. They’ve since plunged 86% to $355 million. Meanwhile, the Bitcoins he said in October 2020 that he owned are worth $350 million, down 71% from their $1.22 billion peak.

Palmer’s share-price target of $950 is the highest among analysts covering the stock, more than five times MicroStrategy’s closing price of $170.91. He also estimates that Bitcoin will more than quadruple from its current level to hit $95,000 by 2023.

Brent Thill of Jefferies is the only non-bull on MicroStrategy, rating the stock hold with a $180 price target. Management needs to focus on the core software business, which declined 3% in the first quarter, Thill wrote in a June 16 note.

Still, it’s hard to ignore the potential multibillion-dollar writedowns that the company could be facing. Total impairment charges on MicroStrategy’s Bitcoin holdings already reached roughly $1 billion at the end of the last quarter. The company has also come under scrutiny due to the possibility that it could face a margin call on a $205 million loan it took out this year to buy more Bitcoin.

Saylor, however, told investors this month not to worry about a potential margin call, saying the company has ample collateral to pledge if necessary.

Tech Chart of the Day

Apple Inc. and Saudi Aramco have been tightly contesting the title of the world’s most valuable company as major forces shake up the global economy. In May, the crude producer overtook the iPhone maker, helped by the surge in oil prices while concerns around rising inflation triggered multiple routs in technology stocks. Apple shares were trading higher on Thursday, putting the stock on course for its best week in June.

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  • Uber Technologies Inc. explored options for its Indian ride-hailing business, including a sale, but suspended discussions after tech startup valuations cratered, people familiar with the matter said.

  • Elon Musk said Tesla Inc.’s new plants in Germany and Texas are losing “billions of dollars” as the electric-vehicle maker tries to ramp up production.

  • SumUp has achieved an 8 billion euro ($8.4 billion) valuation in its latest funding round, raising 590 million euros in a deal split between debt and equity in a bid to develop new products and gain clients.

  • Toshiba Corp. shares jumped Thursday after Reuters reported bidders are considering offering up to 7,000 yen per share to take the company private, which would value the deal at about $22 billion.

  • JPMorgan Asset Management is doubling down on China tech stocks after enduring a tumultuous selloff, betting that an easing of regulatory crackdowns and attractive valuations will pay off well.

  • Meta Platforms Inc. Chief Executive Officer Mark Zuckerberg said he expects people will eventually spend “hundreds of dollars” each buying digital goods in the metaverse, including things like clothes for their virtual avatars.

  • SoftBank Group Corp. founder Masayoshi Son is used to praise and encouragement from shareholders. But the company’s loss of $34 billion in market value over the last year is a test for even his most faithful admirers when they gather for the annual shareholders’ meeting on Friday.

(Adds stock move in last paragragh.)

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