March 2, 2024

MicroStrategy ( MSTR ) stock opened higher on August 3rd as investors digested the news of CEO Michael Saylor’s departure following a disappointing quarterly earnings report.

Microstrategy stock is up 142% from May lows

On the daily chart, the price of MSTR rose nearly 14.5% to $324.55 per share, the highest level since May 6.

The stock’s intraday gains came as part of a broader rally that began May 12 at $134. Since then, MSTR is up 142% versus the Nasdaq’s 26.81% gain over the same period.

MSTR daily price chart. Source: TradingView

Bad Q2, Saylor resignation

The MSTR rally on August 3rd came a day after MicroStrategy reported a loss of one billion dollars during the second quarter (Q2) of earnings. Interestingly, the company’s heavy exposure to Bitcoin was a big reason for its poor quarterly performance.

To recap: MicroStrategy is an information technology company that provides business intelligence, mobile software and cloud-based services. But one of its primary corporate strategies is to invest in Bitcoin to hold it for the long term.

Unfortunately, holding Bitcoin has cost MicroStrategy an impairment loss of $917.84 million. 129,698 BTC holdings in Q2, mainly due to the crypto’s 50% year-to-date (YTD) price drop. In comparison, MSTR plunged 42% over the same period.

BTC/USD Daily Price Chart. Source: TradingView

Additionally, MicroStrategy’s revenue was down 2.6% year over year to $122.07 million. The net quarterly losses prompted Saylor — who has strongly supported Bitcoin’s investment strategy since August 2020 — to step down as the company’s CEO and become executive chairman.

MSTR responded favorably to Saylor’s resignation and the appointment of Phong Le, President of MicroStrategy, as his replacement, suggesting that investors are comfortable with the change in leadership.

What’s next for MSTR?

MSTR’s trajectory for the rest of 2022 is highly dependent on Bitcoin’s performance, given their consistently positive correlation over the past few years. However, several metrics suggest a correction ahead.

The weekly correlation coefficient between MSTR and BTC/USD. Source: TradingView

For example, MicroStrategy’s EV/R ratio was 10.76 on August 3, or in “overvalued” territory.

Likewise, MSTR’s forward price-to-earnings (P/E) ratio reached 54.95, more than double the market average of 20-25. In other words, the market expects MicroStrategy to post huge future earnings growth despite its underperformance in recent quarters.

MicroStrategy has also accumulated $2.4 billion in long-term debt with $46.6 million in interest. Therefore, the company could find itself unable to meet its obligations if it continues to incur losses at its current rate.

MSTR Long Term Debt Table. Source: S&P Capital IQ

In other words, MicroStrategy could pledge its nearly $2 billion worth of Bitcoin holdings as collateral or sell them to raise capital.

Related: A Brief History of Bitcoin Crashes and Markets: 2009–2022

“Nonetheless, crypto and MSTR bulls may remain invested.” famous Juxtaposed Ideas, a Searching Alpha partner, in its latest analysis, saying most are willing to “bet on Bitcoin’s eventual rally to $40,000” or beyond in 2023 or 2024.

“This would be a positive catalyst for the future recovery of its shares, returning some much-needed capital to the highly volatile investment.”

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.