MicroStrategy’s (MSTR) stock rose on Aug. 3, as investors digested news that its CEO Michael Saylor had resigned following a disappointing quarterly earnings report.
Stock of microstrategy up 142% from May lows
The daily chart shows that MSTR’s price jumped by almost 14.5% to $324.55 per Share, its highest level since May 6.
Intraday gains in MSTR were part of a wider recovery that began on May 12th at $134. MSTR’s intraday gains have been 142% higher than the Nasdaq’s 26.81% during that same time.
MSTR daily price chart. Source: TradingView
Saylor’s resignation for Bad Q2.
MicroStrategy had reported a loss of $1 billion in Q2 earnings calls. The Aug. 3 MSTR rally was a day later. It is interesting to note that the company’s large Bitcoin exposure was a major reason for its poor quarterly performance.
MicroStrategy, an information technology company that offers cloud-based and mobile services, business intelligence, and mobile software is a recap. Its primary corporate strategy is to invest in Bitcoin long-term.
MicroStrategy has suffered an impairment loss in Q2 of $917.84million due to holding Bitcoin. This was mainly due to the crypto’s YTD price drop of 50%. MSTR fell 42% during the same time period.
Daily chart of BTC/USD price. Source: TradingView
MicroStrategy’s revenues fell 2.6% to $122.07million, year-over-year. Saylor, who has been a strong supporter of the Bitcoin investment strategy from August 2020, was forced to resign as CEO of the firm and become the executive chairman due to the net quarterly losses.
MSTR responded positively when Saylor resigned and was replaced by Phong Le, president at MicroStrategy. This suggests that investors are happy with the leadership change.
What’s next for MSTR
MSTR’s future course in 2022 will be influenced largely by Bitcoin’s performance. This is due to their positive correlation over the past years. However, several indicators point to a possible correction.
The weekly correlation coefficient of MSTR and BTC/USD. Source: TradingView
MicroStrategy’s enterprise-value-to-revenue ratio (EV/R), was 10.76 on August 3, which is in “overvalued.”
Similar to MSTR, MSTR’s forward P/E ratio has reached 54.95. This is more than twice the market average of 20-25. The market expects MicroStrategy’s future earnings growth to be enormous, despite the company’s poor performance in recent quarters.
MicroStrategy has also amassed $2.4 Billion in long-term debts and $46.6 M in interest expenses. If the company continues to experience losses, it could be unable to pay its debt obligations.
MSTR long-term debt table. Source: S&P Capital IQ
MicroStrategy could also pledge its Bitcoin holdings worth nearly $2 billion as collateral, or even sell them to raise capital.
Similar: A short history of Bitcoin bear markets and crashes: 2009-2022
Juxtaposed ideas, a Seeking Alpha contributor noted that crypto and MSTR bulls might still be invested. It also stated in its most recent analysis that many are willing to “gamble on Bitcoin’s eventual recovery to $40,000” by 2023 or 2024.
“This would be a positive catalyst to its future stock recovery and return some much-needed capital for the highly volatile investment.” You should do your research before making any investment or trading decision.