Inside MicroStrategy's innovative strategy
Since MicroStrategy's software business is basically an afterthought, it can't be valued based on traditional financial metrics like price-to-earnings or price-to-sales.Instead, investors have developed new ways to value the company, namely bitcoin per share and mNAV, or the multiple that investors are putting on the net asset value of its bitcoin.Those metrics are rather straightforward. Bitcoin per share, and bitcoin value per share, reflect how many bitcoin investors are getting when they buy a share of MicroStrategy. The company owns 402,100 bitcoin, or 1.9% of the crypto's supply limit of 21 million. So with a stock price of around $390, each MicroStrategy share gives investors exposure to 0.0017 bitcoin. That much bitcoin is worth $170, which is the bitcoin value per share. Therefore, the stock's mNAV is 2.3x.It may seem strange that investors are paying nearly $400 for what's effectively $170 of bitcoin.There are several reasons, including that MicroStrategy's bitcoin count is steadily rising. One way to think of the stock's mNAV is that investors are paying a premium because they think Saylor will eventually more than double his company's bitcoin stockpile.Another is that MicroStrategy is essentially "a leveraged vehicle for holding bitcoin in the guise of a software company," as Interactive Brokers' Steve Sosnick put it in a message to BI. The veteran strategy chief noted that Saylor's company is borrowing money to buy bitcoin, and that leverage means it rises or falls more than the price of bitcoin itself, making it a supercharged bet on bitcoin.Others echoed this view, including Matthew Sigel, the head of VanEck's digital assets research."MicroStrategy is literally borrowing USD to buy BTC, so it is a leveraged play," Sigel wrote in an email. "The stock is likely to outperform in up markets and underperform in down markets, until enough other companies duplicate the playbook and bitcoin is more widely adopted."
