Software giant MicroStrategy continues to suffer thanks to its ongoing ties with bitcoin. The world’s number one digital currency by market cap has been undergoing a series of heavy losses over the past few weeks that ultimately saw all its 2021 gains disappear over the span of a few months, and now it looks like companies such as MicroStrategy are beginning to bite the bullet.
The bear market has been tough on everyone, but especially on those companies that have put all their eggs in the crypto basket. MicroStrategy is one such company, and its share price has taken a beating as a result. The company now finds itself in a difficult position, as it must decide whether to hang on to its bitcoin holdings in the hope of a rebound or sell them off for much-needed liquidity.
Either way, it’s clear that the bitcoin crash has dealt a heavy blow to MicroStrategy and other companies like it. It remains to be seen how they will recover from this setback.
MicroStrategy Has Lost a Lot of Money
A recent form 10-Q issued by the software company’s main executive Michael Saylor details that quarter one for the firm was particularly bad, with MicroStrategy losing more than $170 million and more than 60 percent of its operating expenses due to the great crypto crash that’s been happening as of late, and this was before bitcoin fell below $30K. The document reads:
We generated a net loss for the three months ended March 31, 2022, primarily due to digital asset impairment losses, and we may not be able to regain or increase profitability on a quarterly or annual basis in the future. Our digital asset impairment losses have significantly contributed to our operating expenses and net loss. For the three months ended March 31, 2022, digital asset impairment losses of $170.1 million represented 64.5% of our operating expenses, contributing to our net loss of $130.8 million for the three months ended March 31, 2022, compared to digital asset impairment losses of $194.1 million in the three months ended March 31, 2021, representing 68.5% of our operating expenses and contributing to our net loss of $110.0 million for the three months ended March 31, 2021.
Despite evidence to the contrary, some say that companies like MicroStrategy aren’t in as dark a place as one would think. For example, Mark Palmer – managing director of BTIG – explained in a recent interview that while MicroStrategy has heavily tied itself to BTC, the company’s value relies less on BTC and more on its actual software offerings, which are still quite strong.
He said:
Inevitably, we see media sources pick up on the impairment charges, which can be quite large, and they lead with those numbers as if they are somehow a significant negative for the company in the stock. The reality is quite different in that the inherent value of MicroStrategy is based on the value of the company’s business intelligence software and the value of the bitcoin on its balance sheet, which can be easily calculated simply by looking at where the price point is given point in time.
So, if you look at MicroStrategy today and you say ‘what’s the value of the bitcoin on their balance sheet?’ Well, that’s about $5.4 billion. And then if you say ‘what is their business intelligence software worth net of cash?’ That gets you to a number just north of $9 per share.The Future Remains UncertainIt’s difficult to predict what will happen next for companies like MicroStrategy, but one thing is certain – the bear market has taken a toll on them and it will be interesting to see how they weather the storm. For now, all we can do is wait and see.
Can One Afford to Hold On?
Owen Lau – executive director at Oppenheimer & Co. – also threw his two cents in, stating:
At the end of the day, unless you’re like MicroStrategy or a bitcoin miner, if you just hold these tokens on the balance sheet in a non-material way, I felt like people and analysts would just adjust that out of the equation.
So, if you look at where the stock is trading now, it’s really just based on the business.