MicroStrategy Adds Bitcoins Worth $489M; Shares Plunge 10%

Shares of MicroStrategy Inc. (MSTR), an enterprise analytics software company, plunged 9.7% on June 21, after adding Bitcoins worth $489 million to its reserves. MicroStrategy provides business intelligence, mobile software, and cloud-based services.

The addition of bitcoins is aligned to the company’s corporate strategy of acquiring and holding bitcoins as treasury assets. MicroStrategy views bitcoin as a reliable store of value.

MicroStrategy purchased an additional 13,005 bitcoins at an average price of $37,617 per bitcoin, inclusive of fees and expenses, on June 21. The purchase was funded by the issuance of Senior Secured Notes worth $500 million at 6.125%, due on June 14, 2028.

With this purchase, the company’s total bitcoin holdings are worth approximately $2.741 billion. The company holds approximately 105,085 bitcoins, purchased at an average price of around $26,080 per bitcoin.

The purchase came on a day when bitcoin (BTCUSD) tanked 9.3% to close at $31,608.10, its lowest since April. The fall followed a Chinese bank’s announcement that it would not allow the use of its services for transactions related to bitcoin or cryptocurrency. (See MicroStrategy stock chart on TipRanks)

According to a Bloomberg report, MSTR will have to report a write-down of around $77 million related to its recent bitcoin purchase, as rules require companies to mark-to-market their purchases.

Last month, following a virtual meeting with the company’s top brass, BTIG analyst Mark Palmer reiterated a Buy rating on the stock with a target price of $850. That implies 45.6% upside potential from current levels.  

The management had stated their intent to add to their bitcoin reserves, which they believe are an “Institutional-Grade Safe Haven,” by issuing secured debt and/or by using the cash generated from their software business.

Palmer said, “We believe MSTR offers equity investors a means through which they can not only gain exposure to bitcoin, but also to an engine – the company’s enterprise analytics software business – that is generating.”

Based on 3 Buys, 1 Hold, and 1 Sell, the stock has a consensus rating of a Moderate Buy. The average MicroStrategy analyst price target of $690 implies a 18.2% upside potential. Shares have gained 37.3% over the past year.

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