Experts warn MicroStrategy’s high-flying valuation has ‘no rational explanation’—and investors face a double whammy of risk
February 8, 2025
1 6 minutes read
MicroStrategy lost money in each of the last four quarters, yet the company has never been worth more.
On Wednesday, the company announced its fourth-quarter earnings for 2024, posting a 3% decrease in revenue and a $671 million net loss that helped it dodge a multibillion-dollar tax bill. Yet, the company has doubled down on its Bitcoin strategy, in part by adding more Bitcoin to its coffers than ever before and by rebranding from MicroStrategy to “Strategy,” with a new logo incorporating the Bitcoin symbol.
“It ties our identity much more closely to Bitcoin and all of the positive aspects of the Bitcoin network in the world,” Saylor said of the rebrand on Wednesday’s earnings call.
The company’s shares fell about 4% Thursday following the release of its earnings results, before rebounding Friday. While its stock has come down to $336 a share as of Friday from an all-time-high close of $473, the dip is merely a drop in the bucket compared to its recent performance. Thanks to executive chairman Michael Saylor’s audacious bet on Bitcoin, the company’s stock has rocketed more than 560% over the past year and boasts an eye-popping market cap of about $85 billion, greater than that of companies like Airbnb, Intel, and Capital One.
The company announced Wednesday that it added $20.5 billion worth of Bitcoin in the fourth quarter of 2024 alone, marking its biggest ever quarterly increase of its Bitcoin holdings. In January alone, Strategy has made four Bitcoin purchases, with two, on Jan. 21 and Jan. 27, worth $1.1 billion each.
Its total holdings of the cryptocurrency now stand at about $30.4 billion. The company owns about 2% of all Bitcoin in circulation, and its holdings have nearly doubled to 471,000 coins from 252,200 in the third quarter of 2024.
“We are a Bitcoin treasury company and we are growing. We are built on an asset, Bitcoin, which is growing 50% a year, and we are growing with that asset,” Saylor said on the company’s third-quarter earnings call for 2024.
Yet, Strategy’s market value defies logic, skeptics say.
Strategy’s market cap stands at just under double the value of its Bitcoin holdings’ market value, or its net asset value (NAV), and that gap is difficult to explain, said Carnegie Mellon University finance professor Bryan Routledge.
“There’s no rational explanation for that difference,” he told Fortune.
MicroStrategy did not respond to multiple requests for comment from Fortune.
Strategy’s core business still involves business intelligence software and some cloud computing. Yet the company’s EBITDA, a measure of profitability that shows how much of its earnings come from its business operations, has been negative since at least the second quarter of 2023, said Jason DeLorenzo, the founder of registered investment adviser Ad Deum Funds. (EBITDA stands for “earnings before interest, taxes, depreciation, and amortization.”)
Among its past or current customers, Strategy counts hotel chain Hilton, the fast-food chain KFC, and pharmaceutical company Pfizer, according to its website.
Still, Saylor is more focused on the company’s Bitcoin strategy. Through its “21/21 plan,” the company plans to buy $42 billion worth of the cryptocurrency over the next three years, funded equally by sales of equity and fixed-income securities.
“If Bitcoin grows in excess of 21%, if that happens, MicroStrategy’s capable of BTC (Bitcoin) gains in excess of $10 billion a year within four years,” Saylor said on the company’s third-quarter 2024 earnings call.
The company’s shares are attractive to some because they provide a way to speculate on Bitcoin without having to buy the asset directly or buy an ETF linked to the value of the asset. Yet, by putting money into Strategy, investors face a double whammy of risk, Routledge said.
“You’re not just facing Bitcoin risk. You’re facing whatever is driving this difference between the net asset value and the price of the shares,” he said. “That extra component is an extra source of risk,” he said.
In the best-case scenario, Strategy’s market cap would come back into line with the value of its Bitcoin assets and Bitcoin would remain at a high price. In this case, an investor could short expensive Strategy shares and buy cheaper Bitcoin directly, profiting from an arbitrage opportunity when Strategy’s shares fall back in line with the value of its Bitcoin holdings. Yet cashing in on this disconnect for now, though, could be difficult, Routledge added.
“I don’t know whether that difference is going to get better or worse before it comes back to a one-to-one connection,” he said. “There’s this famous quote, I think it’s from John Maynard Keynes, that is, ‘the market can stay irrational longer than you can stay liquid.’”
Chart shows Strategy stock price change compared to Bitcoin price
Saylor’s Bitcoin strategy has previously taken the company to the brink before and survived. On Oct. 13, 2022, with Bitcoin’s price having collapsed to a two-year low, Strategy’s holdings at the time were worth $26 million less than the debt he was obligated to pay, Fortunereported at the time. Although the price of Bitcoin recovered in 2023 and exploded in 2024, Strategy came close to a possible disaster, but Saylor came out on top.
Yet, in the worst-case scenario, Strategy’s Bitcoin emphasis may put it in a bind. If the price of Bitcoin drops and the company needs to dip into its reserves to cover its debts, it will still have to convert Bitcoin to dollars, incurring both fees and taxes that could reduce its value by about a quarter, said DeLorenzo.
And if Strategy sells a majority of its Bitcoin too quickly, it risks reducing the overall value of the cryptocurrency because the market may not have enough liquidity to maintain its value in light of a major sale, DeLorenzo said. Any drop Bitcoin’s price would also reduce the value of the company’s overall holdings.
“I think that MicroStrategy itself is built on a house of cards based on Bitcoin,” he said.
Founded in 1989 by Saylor and two MIT classmates, the newly renamed Strategy was once all-in on data analytics. As a business analytics pioneer, the upstart software company helped early customers like McDonald’s parse massive amounts of data to make business decisions.
The company and its young founder, Saylor, who was only 24 when he started the company, quickly rose to become one of the biggest beneficiaries of the late ‘90s tech boom. In 1998, Strategy went public and Saylor became a billionaire on paper almost overnight.
Saylor became known for his lofty ambitions and even loftier predictions. He also garnered a reputation as a man who wasn’t afraid to flaunt his wealth. He famously owns several yachts, including one which was featured in the 2015 movie Entourage.
CANNES, FRANCE – MAY 19: A general view of the “Art of Elysium Paradis Dinner and Party” at Michael Saylor’s Yacht, Slip S05 during the 63rd Annual Cannes Film Festival on May 19, 2010 in Cannes, France. (Photo by John Shearer/Getty Images for Art of Elysium)
Yet, in 2000, the company ran into trouble when it announced that its revenue for 1999 was more than 25% less than it previously claimed. Saylor’s personal fortune collapsed by $6 billion as a result, the biggest single-day loss for an individual in history up to then. Saylor paid out $8.28 million later that year to settle a case brought against him, his cofounder Sanju Bansal, and a former chief financial officer by the Securities and Exchange Commission. The SEC accused Saylor’s company of materially overstating its revenues and earnings between the time the company went public in June 1998 until March of 2000. He did not admit to wrongdoing.
The multi-billionaire CEO’s Bitcoin ambitions are just the latest big bet he’s made on a burgeoning technology. In 2012, he wrote a best-selling book, The Mobile Wave: How Mobile Intelligence Will Change Everything, predicting the mobile computing trend brought on by smartphones and other portable devices. Inside of Strategy, Saylor also helped build out two successful businesses the company later sold, including Alarm.com, which lets homeowners and businesses monitor their security systems using the internet.
After saying in 2013 that Bitcoin’s “days are numbered,” Saylor changed his mind on the cryptocurrency during the pandemic. In 2020, Saylor began to worry that the Fed’s policies could stoke inflation, eating into the value of Strategy’s cash holdings.
“We just had the awful realization that we were sitting on top of a $500 million ice cube that’s melting,” he said in an interview at the time with crypto media outlet CoinDesk.
After an initial $250 million purchase in 2020, the company’s stock jumped 10% and Saylor never looked back. He has since led Strategy to accumulate billions of dollars worth of the token. He says he will never sell.
