Four years ago, MicroStrategy co-founder and chairman Michael Saylor turned to bitcoin as a way to invest the company’s excess cash instead of traditional assets like short-term Treasury bonds. This decision has transformed the software company into the largest corporate holder of the largest cryptocurrency on the market, with a bitcoin Reserve It is now worth almost $15 billion.
However, as analysts begin to pay more attention, a new question arises: can MicroStrategy's underlying enterprise software business keep pace with its rapidly growing bitcoin holdings?
MicroStrategy may pause bitcoin purchases
According to Bloomberg bitcoin-rally” target=”_blank” rel=”noopener nofollow”>reportRevenue from MicroStrategy’s software operations has stagnated in recent quarters, even as the value of its bitcoin investments has risen. This has raised concerns about the company's ability to cover the additional costs. interest expenses associated with the convertible debt it has issued to finance its bitcoin purchases.
TD Cowen analyst Lance Vitanza stressed the importance of ensuring MicroStrategy’s cash flows can cover the interest expenses associated with the company’s convertible debt. Vitanza’s analysis suggests any underperformance in the software business could leave “little room for error.”
Vitanza estimates that MicroStrategy has about $45 million in interest expense and $20 million in cash taxes this year, compared with about $82 million in earnings before items such as taxes. This tight liquidity situation, he says, could prompt the company to postpone the stock issuance. additional debt to buy more bitcoin until next year.
To fund its bitcoin acquisitions, MicroStrategy has leveraged several avenues beyond operating cash flow, including issuing more than $2 billion in convertible bonds this year.
Quarterly losses loom
Cash flow could also be affected by an accounting change coming next year that will require MicroStrategy to value its digital assets at market level. The company has warned that it may have to pay a corporate alternative minimum tax of 15% if its adjusted annual average Financial state revenues for any consecutive three-year fiscal period preceding the fiscal year exceed $1 billion.
“If we become subject to these new IRA taxes for these or any other reasons, it could materially affect our financial results, including our earnings and cash flow, and our financial condition,” the company said in a recent filing.
Despite these concerns, MicroStrategy Share have risen 156% this year, outpacing the roughly 50% jump in btc's price over the same period.
However, the company is expected to post a quarterly loss of 78 cents per share, and may have to record an impairment charge on its bitcoin stock, which could make it unprofitable for 12 of the 16 quarters since it began buying bitcoin.
At the time of writing, btc is trading at $64,200, down more than 3% in the past 24 hours, triggering a correction across most of the top 100 cryptocurrencies by market cap list.
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