Stock Analysis & Ideas

The Biggest Reason Why Microstrategy is Down Today

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Microstrategy fell during Friday’s trading session. The reason behind the drop is fairly simple but has deep ramifications for the company as a whole.

There are two sides to Microstrategy (MSTR). The first is the business intelligence tools side, which is actually a lot less popular than the second side – a massive bitcoin (BTC-USD) investor. Microstrategy lost ground because its large bitcoin holdings—around 129,699 as of its last report—lost ground overnight. Bitcoin briefly dropped below $22,000, the latest in a series of drops for the cryptocurrency.

The last 12 months for Microstrategy shares started out sound, but that eventually shifted. This time last year, the company was challenging $720 per share. In early November, it cleared $860 per share. That, however, was where Microstrategy’s party ended.

By January’s end, the company was down well under half that figure, coming in just over $350. A small rally followed to push the company back above $500 in March, but that rally reversed as well. Now, another rally is in effect, and the company seems to be finding its feet in the $300 – $350 range.

Microstrategy’s bitcoin holdings have done a solid job of drawing attention to the company. If it could get that kind of attention going around its business intelligence holdings, it might be an especially noteworthy proposition.

That being said, for now, I’m neutral on the company. Too much of its fate seems tied up in bitcoin as opposed to its actual stock in trade. That dependence could wind up costing it in the future.

Insiders are Buying Microstrategy Stock

Analysts’ reaction to Microstrategy is somewhat tepid right now, and that’s oddly reflected by investor sentiment metrics. Currently, Microstrategy has a 6 out of 10 Smart Score on TipRanks. That’s almost pure neutral; since the score is a 10-scale, it has no exact midpoint, leaving five and six to share the honor. However, insider trading at Microstrategy is a bit of a different story. In the last three months, Microstrategy insiders bought $608,000 worth of shares.

Given share prices these days, that’s about 2,000 shares. Still, it’s a clear focus on buying.

Insiders at Microstrategy actually haven’t sold stock in 2022. The last sale was recorded back in 2021, nine months ago, when director Carl Rickertsen sold just over $440,000 worth of shares. Rickertsen’s sale was just one of a string of sales that took place in that same month.

Due to massive selling that month, Microstrategy insiders proved slightly sell-weighted. There were 11 total sell transactions in the last 12 months against just seven buy transactions. Most of the buy transactions, however, took place this year.

MSTR Stock – Not Enough Focus on Business Intelligence

Much of the news surrounding Microstrategy comes from its massive bitcoin holdings. However, there’s a real problem. While this is an important part of Microstrategy’s business, there’s much less focus on the other part of Microstrategy’s everyday operations. Specifically, its business intelligence products.

Currently, the market for global embedded business intelligence is around $26 billion. Over the next six years, analysts expect a compound annual growth rate of 11.8%. In 2028, that will bring it up to around $73.35 billion. Having a piece of that market is absolutely no slouch.

Microstrategy’s decision to hold bitcoin was a winner. The company’s stock seems to rise and fall with every major shift in the cryptocurrency’s value. That’s probably a lot of the reason why the company didn’t go with art or real estate as a counter-currency hedge. Given the recent inflation shocks, it’s easy to see why a counter-currency hedge was important.

However, what we don’t see much of is what Microstrategy is doing in the business intelligence field. A quick search for “Microstrategy” on Google News will show as much. The front page focuses mainly on share price movements and its bitcoin holdings.

There’s not a story about Microstrategy’s business intelligence operations until the second page. That’s where we find an update to the analytics platform that provides tools for improving both data security and data governance.

Here’s the real problem for Microstrategy, though. A little farther down that second page of Google News ranking is a story from Analytics India Magazine. The title? “Should Microstrategy Be Even Called a BI Company Anymore.”

The article notes that while Microstrategy has been a big part of business intelligence for decades, much of its public developments have been about bitcoin in the last two years. The business press should never be able to viably question if you’re actually still a part of your main industry.

Is MSTR Stock a Good Buy?

Turning to Wall Street, Microstrategy has a Moderate Buy consensus rating. That’s based on three Buys and one Sell assigned in the past three months. The average Microstrategy price target of $500.67 implies 70.4% upside potential. Analyst price targets range from a low of $180 per share to a high of $950 per share.

Conclusion: MSTR Stock Needs Compelling Business Intelligence Developments

There are things to like about Microstrategy. It’s continually improving its product line and certainly has a draw to help keep its name in the news. However, too much emphasis is being placed on bitcoin. The company has allowed its sideshow—a brilliant marketing play—to get out of hand and become the focus of its press. Microstrategy needs some compelling business intelligence developments to become a truly attractive option again, and that’s much of why I’m neutral overall.

It will be interesting to see if the company returns its focus to its core business after Co-Founder Michael Saylor quit his CEO role.

Disclosure

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