Shares of MicroStrategy ( MSTR ) rose on Aug. 3 as investors digested news of the departure of its CEO Michael Saylor after disappointing quarterly results.
Microstrategy shares are up 142% since May
On the daily chart, MSTR rose almost 14.5% to $324.55 per share, the highest price since May 6.
The stock’s daily gains came as part of a broader recovery that began May 12 at $134. Since then, MSTR has gained 142% versus the Nasdaq’s 26.81% gain over the same period.
Bad Q2, Saylor’s resignation
The MSTR rally on August 3rd came a day after MicroStrategy reported a billion dollar loss in its second quarter (Q2) earnings call. Interestingly, the company’s major Bitcoin exposure was a big reason for the poor quarterly performance.
To recap: MicroStrategy is an IT company that provides business intelligence, mobile software and cloud services. But one of its main business 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 since 129,698 BTC holdings in Q2, primarily due to the crypto’s 50% year-to-date (YTD) price drop. In comparison, MSTR fell by 42% over the same period.
Furthermore, MicroStrategy’s revenue fell 2.6% year over year to $122.07 million. The net quarterly loss prompted Saylor — who has backed Bitcoin’s investment strategy since August 2020 — to step down as the company’s CEO and become an executive.
MSTR reacted positively to Saylor’s resignation and the appointment of MicroStrategy President Phong Le as his replacement, suggesting investors are comfortable with the change in leadership.
What’s next for MSTR?
The course of MSTR for the rest of 2022 depends largely on the performance of Bitcoin, given their constant positive correlation in recent years. But several indicators point to a correction ahead.
For example, MicroStrategy’s enterprise value-to-earnings (EV/R) ratio was 10.76 on August 3, or in “overvalued” territory.
Similarly, MSTR’s forward price/earnings (P/E) ratio has reached 54.95, more than double the market average of 20–25. In other words, the market expects MicroStrategy to show tremendous earnings growth going forward despite its recent underperformance.
MicroStrategy has also raised $2.4 billion in long-term debt with $46.6 million in interest expense. Therefore, the company may find itself unable to meet its obligations if it continues to incur losses at its current rate.
In other words, MicroStrategy could pledge nearly $2 billion worth of its Bitcoin holdings as collateral or sell them to raise capital.
Related: A Brief History of the Bitcoin Crash and Bear Market: 2009–2022
“Nonetheless, crypto and MSTR bulls can remain invested,” Juxtaposed Ideas, a contributor to Seeking Alpha, said in its latest analysis, saying most are willing to “bet on Bitcoin’s eventual recovery to $40,000” or longer before 2023 or 2024.
“It would be a positive catalyst for future stock recoveries, providing much-needed capital for the highly volatile investment.”
The views and opinions expressed here are solely those of the authors and do not necessarily reflect the views of Cointelegraph.com. Every investment and business move involves risk, you should do your own research when making a decision.
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