MicroStrategy (MSTR 2.38%) went through a dramatic transformation over the past four years. Up until 2020, it was a slow-growth analytics software maker that seemed to be losing ground to its nimbler cloud-based competitors. But that year, its co-founder and then-CEO Michael Saylor directed the company to make its first $250 million purchase of Bitcoin (BTC 0.89%). By the end of April 2024, its Bitcoin holdings had swelled to $7.54 billion, which equals roughly a quarter of MicroStrategy's enterprise value of $30 billion.
MicroStrategy's massive Bitcoin holdings overshadowed the sluggish growth of its software business, but can it keep growing and become a trillion-dollar stock by 2030?
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MicroStrategy's valuation is tethered to Bitcoin's future
MicroStrategy's revenue only increased at a compound annual growth rate (CAGR) of 1% from 2020 to 2023. Like many older enterprise software companies, its core business of on-premise software is struggling to keep pace with cloud-based analytics specialists like Salesforce, integrated analytics tools in cloud infrastructure platforms like Amazon Web Services (AWS) and Microsoft Azure, and niche mobile business intelligence companies like Domo.
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MicroStrategy has been expanding its subscription-based cloud services to offset that slowdown. Its subscription revenue rose 33% year over year in 2023, but the business only accounted for 16% of its top line and couldn't offset its declining product license and support revenue. As a result, its revenue fell 1% for the full year.
Analysts expect MicroStrategy's revenue to climb at a CAGR of 3% from 2023 to 2026 as it expands its subscription services. However, that's still an anemic growth rate for a stock that trades at a whopping 61 times this year's sales.
It's evident MicroStrategy's valuation is clearly being inflated by the belief that its Bitcoin purchases will eventually pay off. But the impairment costs from those purchases caused it to turn unprofitable on a generally accepted accounting principles (GAAP) basis in 2020, 2021, and 2022. It finally squeezed out a net profit in 2023, but analysts expect it to rack up even more annual losses through 2026. On the bright side, they project its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) -- which excludes a lot of that noise -- to increase at a CAGR of 19% from 2023 to 2026.
How much will MicroStrategy be worth in 2030?
MicroStrategy had paid an average price of $35,180 per Bitcoin by the end of April, so it's sitting on an unrealized again of more than 80% on its holdings so far. It plans to keep buying even more Bitcoin, but it's already increased its share count by more than 80% over the past four years to fund those purchases. Its total liabilities also more than quadrupled from $913 million at the end of 2020 to $3.95 billion in the first quarter of 2024.
In a worst-case scenario, Bitcoin's price could collapse before MicroStrategy's subscription business grows large enough to offset its declining legacy revenue. If that happens, its valuation will crater as its dilution and debt strangle its business.
But in a best-case scenario, Bitcoin's price could soar and significantly strengthen MicroStrategy's balance sheet. There are already plenty of bullish predictions for Bitcoin's future: Ark Invest's Cathie Wood claims its price will hit $3.8 million by 2030, venture capitalist Chamath Palihapitiya sees its price reaching $1 million by 2040-2042, and Fidelity claims that it could reach a whopping $1 billion by 2028-2030. If Bitcoin comes anywhere close to those targets, the value of MicroStrategy's Bitcoin holdings could quickly exceed its enterprise value -- and the company would suddenly become undervalued.
MicroStrategy more than doubled its total Bitcoins held between the end of 2020 and 2023. If it conservatively doubles its Bitcoin holdings again by 2030 and the cryptocurrency's price hits $1 million, its stake would blossom to $380 billion. Assuming its Bitcoin holdings still account for a quarter of its enterprise value, it could grow into a $1.5 trillion company and generate a 50-bagger gain from its current prices.
There are easier ways to invest in Bitcoin
MicroStrategy has a narrow but viable path toward joining the four-comma club by the end of the decade, but the bullish outlook completely hinges on Bitcoin's ability to go parabolic over the next six years. It's also unclear if it can keep diluting its own shares and taking on more debt to buy more Bitcoin if its price skyrockets. So instead of investing in a struggling software company that's hoarding Bitcoin, I believe it's smarter to simply buy Bitcoin or invest in a Bitcoin ETF if you're bullish on the cryptocurrency's future.
