Michael Saylor, co-founder and Chairman of MicroStrategy, shifted the company’s excess cash into Bitcoin four years ago instead of traditional assets like short-term Treasuries, making it the leading corporate holder of Bitcoin with holdings valued at nearly $15 billion.
With a focus on the company’s enterprise software business, analysts are now questioning whether MicroStrategy can sustain its growth alongside its expanding Bitcoin investments.
MicroStrategy Considers Halting Bitcoin Purchases
Recent data revealed that MicroStrategy’s software revenue has remained stagnant while the value of its Bitcoin holdings has soared, leading to concerns about meeting the interest expenses related to the convertible debt used to fund Bitcoin acquisitions.
Analyst Lance Vitanza from TD Cowen emphasized the necessity of ensuring that MicroStrategy’s cash flow can cover the interest costs linked to the company’s convertible debt. Vitanza’s findings suggest that any underperformance in the software business could leave little room for error.
Vitanza estimates that MicroStrategy faces approximately $45 million in interest expenses and $20 million in cash taxes this year, against earnings of around $82 million before taxes, indicating a tight cash position that might delay additional debt issuance for Bitcoin purchases until the following year.
MicroStrategy has accessed various sources to acquire Bitcoin, including issuing over $2 billion in convertible notes this year.
Impending Quarterly Losses
A forthcoming accounting change will require MicroStrategy to value its digital assets at market price next year. The company has warned of a potential 15% corporate alternative minimum tax obligation if its average annual adjusted financial statement income exceeds $1 billion over a consecutive three-tax-year period.
If subject to these new taxes, MicroStrategy anticipates a significant impact on its financial outcomes, including earnings, cash flow, and overall financial health.
Despite these challenges, MicroStrategy’s stocks have surged by 156% this year, surpassing BTC’s price increase of approximately 50% during the same period.
The company is predicted to report a quarterly loss of 78 cents per share and might need to recognize an impairment charge on its Bitcoin holdings, potentially leading to unprofitability in 12 out of the 16 quarters since initiating Bitcoin purchases.
At present, BTC is priced at $64,200, with a more than 3% decrease in the last 24 hours, contributing to a decline in most of the top 100 cryptocurrencies by market capitalization.
Image source: DALL-E, chart: TradingView.com
