MicroStrategy shares trade at 2.7x premium, analysts: Like Bitcoin on steroids

According to data from MSTR-Tracker, as of October 14, the net asset value (NAV) premium of MicroStrategy (MSTR), the listed company that holds the most BTC globally, has reached the highest level in three years, at around 270%. The NAV premium is calculated by dividing MSTR's market capitalization by the value of its BTC holdings, so a higher NAV indicates that holding MSTR's stock has generated 2.7 times the returns compared to directly holding BTC.

Premium Factors

The key factors explaining the premium of MicroStrategy's stock relative to its BTC holdings include its leverage strategy and the free cash flow from its software business. MicroStrategy uses leverage - through financial instruments such as at-the-market (ATM) equity offering programs and convertible senior notes - to amplify its BTC holdings. As of October 14, MicroStrategy has about $3.91 billion in long-term debt and a market capitalization of $35 billion, indicating a leverage ratio of 1.1 times its equity. Assuming a 10% increase in the value of BTC, without leverage, the value of MicroStrategy's BTC holdings would also increase by 10%, as would its stock price. But because MSTR uses debt, the company can control more BTC than if it used only its own (equity) funds. Thus, when BTC rises 10%, the total value of the company's assets increases by around 11% rather than 10%, indicating that the NAV premium of MSTR is derived from the leverage effect. While MicroStrategy's software business is often overlooked, it generated around $111 million in revenue in the second quarter, with stable subscription revenue growth, providing a cash flow base to service debt and maintain its BTC acquisition strategy. Additionally, the market has strong confidence in MicroStrategy CEO Michael Saylor's aggressive BTC acquisition strategy. Since adopting BTC as its primary treasury asset in August 2020, MSTR has consistently outperformed BTC and most traditional stocks. Since acquiring its first BTC, MSTR's gains have reached around 1700%, compared to only around 500% for BTC over the same period. Analyst Maartunn described MicroStrategy's stock as a "steroid-injected version of BTC".