Summary
MSTR’s NAV premium is justified when its BTC acquisitions are seen as recurring value accrual in BTC, and BTC itself is accepted as a legitimate monetary asset, on par with other cash equivalents. This mirrors how a company’s export earnings, denominated in a foreign currency, are assigned a multiple to value its export business.
Using a 6% BTC Yield, our valuation framework – applying a 6x multiple to MSTR’s average annual BTC ‘earnings’ – aligns with its current market value. This suggests the market is beginning to embrace the narratives behind this approach.
MSTR’s ability to consistently deliver BTC yield (i.e. ‘BTC earnings growth’) is critical, as it would further legitimize an earnings multiple approach. While BTC liquidation risk from debt repayment could arise in a severe multi-year downcycle, such an event remains unprecedented.
Source: Bloomberg
1. Introduction
MicroStrategy’s BTC treasury operation is not only driving Bitcoin adoption among publicly listed companies worldwide, but also has the potential to reshape the corporate landscape. Yet, mainstream investors – stuck in dogmatic thinking – see it as little more than a leveraged BTC ETF at best, or a reckless punt at worst. As is often the case in crypto, there’s a massive perception gap, and this report aims to bridge it. To that end, we’ll cover the 4Q24 earnings preview, the 2025 outlook, the valuation framework, and key risks to consider.
1.1. Disclaimer / Disclosure
This report is for informational purposes only and does not constitute financial advice. Presto does not hold a position in any securities issued by MicroStrategy. Any opinions expressed are based on our analysis and should not be construed as an offer to buy or sell securities or a solicitation to engage in trading activity of the securities issued by MicroStrategy.
2. 4Q24 Earnings Preview
MicroStrategy (MSTR) is scheduled to report its fourth-quarter earnings on Wednesday, February 5 Eastern Time, followed by an analyst call the next day. The consensus earnings estimate, based on eight analysts, is shown in Figure 1.
Figure 1: MicroStrategy Inc. 4Q'24 Earnings Estimates
Source: Bloomberg
A caveat is that MSTR's reported earnings fail to capture the value accrual from the company's Bitcoin treasury operation, primarily because the current accounting treatment of its BTC holdings does not reflect market value (more on this later). Therefore, the additional metrics and guidance from the earnings call are essential for evaluating the investment merits. BTC Yield is one of them.
2.1. BTC Yield
In August last year, MSTR introduced a concept called "BTC Yield." BTC Yield represents the percentage change in the ratio of the company’s BTC holdings to the company’s fully diluted shares over time. Another way to think of it is as BTC per share growth rate on a fully diluted basis. MSTR uses BTC Yield as a KPI for shareholders, believing it to be a more useful measure of the company’s value accretion.
MSTR’s real-time announcements of each round of Bitcoin acquisitions mean investors don’t have to wait for quarterly earnings releases to monitor the KPI. MSTR achieved a 48% BTC Yield in 4Q24, translating into a 74% BTC Yield for full 2024. BTC Yield is important because the consistent growth of its BTC holdings is touted as what justifies MSTR’s NAV premium, which has been the subject of heated debate in recent months. More on this later in “4. Making Sense of MSTR’s Valuation.”
Figure 2: BTC Holdings Have Been Growing Faster Than Dilution
Source: saylorcharts.com
3. 2025 Outlook
Significant changes await MSTR in 2025, the most notable being the accounting treatment of its BTC holdings. This change may, in turn, have implications for a major index inclusion.
3.1. Accounting Change
When reporting earnings, MSTR currently treats its BTC holdings as an intangible asset, following the rules set by the Accounting Standards Board (FASB). However, these rules were revised in 2024, and MSTR plans to adopt the changes starting in 1Q25.
Under the FASB's rules, intangible assets are valued using the 'lower-of-cost-or-impaired-value' method, where assets reflect value declines (in the form of impairment charges) but not value increases, unless the assets are sold. In contrast, the FASB's revised rules will allow digital assets to be “marked-to-market,” enabling unrealized gains and losses to be reflected in earnings.
This change is expected to boost MSTR’s bottom line substantially. Under the old rules, MSTR rarely reported profits due to large impairment charges from its BTC holdings (booked under “Other Operating Expenses” in Figure 1). This trend is likely to reverse in 2025, helped by sizable unrealized investment gains (Figure 3).
Figure 3: MSTR EPS Before and After
Source: Bloomberg, saylorchart.com, Presto Research
3.2. S&P 500 Inclusion
A key benefit of the FASB rule change is that it brings MSTR closer to S&P 500 inclusion. One key eligibility criterion for the index is profitability based on reported earnings, which MSTR fails to meet under the old FASB rule (Figure 4). While S&P has significant discretion in the final decision, and inclusion may take time (for reference, Tesla’s inclusion took five months after meeting the quantitative criteria), the FASB rule change at least clears a path. Inclusion would bring further legitimacy to MSTR’s BTC treasury operation, potentially encouraging more public companies to follow suit.
Figure 4: MSTR Likely to Tick All the Boxes Soon
1. For a full description, see S&P U.S. Indices Methodology
Source: S&P Global, mstr-tracker.com, Presto Research
4. Making Sense of MSTR's Valuation
MSTR’s value accretion comes from its BTC treasury operation, which involves acquiring Bitcoin using funds raised through equity and debt issuance. Traditional investors often dismiss this as a gamble on a speculative asset and see MSTR shares – trading at a 220% premium to NAV – as a bubble waiting to burst. However, for those who see Bitcoin as a monetary asset and trust MSTR’s execution, that premium may not only be justified but even undervalued. To understand why, a refresher on equity valuation is in order.
4.1. Revisiting Earnings-Based Approach
For illustration, imagine a company called XYZ in a hypothetical country, Mango Republic. XYZ farms mangos and sells them both locally and abroad. Its annual cash earnings from domestic sales are MG$100 million, growing at 5% per year, while export earnings amount to US$10 million, growing at 10% per year. The company also holds US$70 million on its balance sheet, accumulated from its export business. A traditional equity investor would value XYZ’s equity as shown in Figure 5 in this scenario.
Figure 5: How to Value Company XYZ
1. US$1=MG$3, where MG$ is the fiat currency of the Mango Republic
2. Equity Value=Enterprise Value (EV)+Net Cash, where EV=cash earning x fair value multiple, and net cash=cash & cash equivalents-interest-bearing debt
3. Fair value multiple=long-term annual growth rate
4. NAV=Value of Core Business+Net Cash
Source: Bloomberg, Presto Research
As the table shows, XYZ’s value consists of three parts: its core business, net cash, and export. For the purpose of our discussion, it’s important to note that XYZ’s fair value of MG$1 billion is nearly 5x its US dollar holdings worth MG$210 million. This is because the export business is valued as a recurring earnings stream. If, on the other hand, one views exports as ad hoc rather than a going concern, the export business would not command a valuation in the multiples of its cash earnings and the MG$1 billion valuation would merely be described as a 41% premium to NAV.
This, in essence, explains the controversy around MSTR’s NAV premium valuation. Investors who view MSTR’s BTC treasury operation as sustainable would value it as recurring earnings denominated in BTC, and be willing to pay a multiple, similar to a P/E ratio. Those who don’t would limit their valuation to the market value of MSTR’s BTC holdings and its software business – i.e., a traditional NAV approach.
4.2. Valuing MSTR as a BTC Earner
MSTR can be valued in the same framework, as summarized in Figure 6.
Figure 6: MSTR's Fair Value Estimate
1. 1 BTC=US$100,000
2. Equity Value=Enterprise Value (EV)+Net Cash, where EV=cash earning x fair value multiple, and net cash=cash & cash equivalents-interest-bearing debt
3. Fair value multiple=S&P 500 average from Bloomberg
4. NAV=Value of Core Business+Net Cash
5. 12-month Qtr3 trailing EBITDA 5yr average from Bloomberg
6. MSTR’s average annual BTC acquisition from Aug 2020 through Dec 2024
7. Based on 6-10% BTC Yield target as guided by MSTR
8. Sum of all outstanding debts at issuance
Source: Bloomberg, Presto Research
Here, we value MSTR’s BTC treasury operation as a separate business unit generating 103,846 BTC annual earnings with 6% growth rate p.a. Fundamentally, this is comparable to valuing the Company XYZ’s export business generating US dollar earnings in the earlier example (Figure 7). According to this approach, the BTC treasury operation is worth 623,076 BTC based on a 6x multiple (based on the lower end of the 6-10% BTC Yield guided by MSTR), or US$62 billion.
Figure 7: Not So Different After All
Source: Presto Research
Interestingly, our fair value estimate of $104bn above more or less matches MSTR’s current market value on a fully diluted basis ($97bn based on 1/31/25 closing price of $334).
4.3. A Full-Spectrum Valuation
Viewed through this framework, MSTR’s ability to consistently deliver BTC acquisitions is critical to its value accretion, as this consistency shapes the market’s perception of MSTR’s treasury operation as a going concern. In October, MSTR announced the “21/21 Plan” to buy $42 billion worth of BTC over the next three years for precisely this reason – it aims to instill market confidence that BTC acquisition will be a recurring activity.
The sustainability of MSTR’s BTC treasury operation largely depends on its ability to raise capital from the public market, which, in turn, is tied to the Bitcoin market cycle. To assess MSTR’s fair value across different scenarios, we’ve also estimated its value under both worst- and best-case scenarios using our own set of parameters (Figure 8).
Figure 8: MSTR's Fair Value Estimates Under Varying Scenarios
1. Assumes: 1) MSTR’s market cap drops to $30bn (1/3 of today’s level), and 2) MSTR can raise capital equivalent to 2% of its $30bn market cap, consistent with its operating environment during the 2022 bear market
2. Assumes the market assigns zero value to the BTC treasury operation as a source of recurring value accrual
1. Assumes MSTR acquires BTC at the Jan 2025 run rate
2. Assumes 15% BTC Yield, based on 296,484 BTC acquisition in 2025
Source: Bloomberg, Presto Research
The key drivers of the two scenarios' divergence are the size of BTC acquisitions and valuation multiples. In our worst-case scenario, MSTR returns to parity with NAV, which could itself decline in a bear market.
5. Risks
Like all investments, MSTR carries its own share of risks, impacting not just MSTR-issued securities but also the broader BTC market due to its large BTC holdings. This section addresses some of those risks.
5.1. BTC Liquidation Risk
MSTR’s recent BTC acquisitions were funded through debt issuances, summarized in Figure 9. Given their size, there’s concern that MSTR may be forced to liquidate BTC holdings upon maturity.
Figure 9: MSTR's Outstanding Debts
Source: Bloomberg
The catch is that all outstanding debt consists of convertible bonds, meaning they may never need to be redeemed if converted into shares. This depends on where MSTR shares trade near maturity. Additionally, call options offer MSTR some protection, allowing it to force conversion when BTC trades above the conversion prices.
That said, MSTR would likely have to liquidate at least part of its BTC holdings if all the following conditions are met:
MSTR shares fall and remain below the conversion prices at maturity.
MSTR fails to call, leaving the full debt amount outstanding.
MSTR cannot raise additional capital due to poor market conditions.
This scenario could unfold if BTC enters a severe multi-year downcycle, though such an event would be unprecedented. In this unlikely case, MSTR wouldn’t have the opportunity to exercise its call option in time, bondholders wouldn’t convert since MSTR shares trade below conversion prices, and the public market might be unwilling to underwrite refinancing.
5.2. Other Risks
Key Man Risk: As founder, chairman, and a major shareholder (~8% stake via Class A and B shares), Michael Saylor plays an outsized role on MSTR’s board. It’s unclear whether there’s enough talent capable of replacing him – someone who understands both Bitcoin, and capital markets well enough to exploit their idiosyncrasies.
Control Dilution Risk: Repeated share issuances expose existing shareholders to ownership dilution and could eventually lead to a loss of control for major shareholders. If MSTR trades at a significant discount to NAV and shareholder support for Saylor’s Bitcoin treasury operation weakens, its fragmented ownership could leave the company vulnerable to a hostile takeover aimed at liquidating its BTC holdings.
Competition Risk: As more companies adopt MSTR’s BTC treasury model, the supply of Bitcoin-fueled securities will grow, intensifying competition for public market funding. While MSTR’s first-mover advantage remains strong, this could change if large-cap firms – worth hundreds of billions – enter the space.
Figure 10: MSTR Shareholder List (as of 1/31/25)
Source: Bloomberg
6. Final Words
If a company in an emerging market with a hyper-inflating currency generates recurring US dollar income, investors typically assign a multiple to its US$ earnings stream. In many cases, the market even applies a premium multiple, as hard currency earnings are seen as superior to local currency earnings. This pattern is commonly observed in emerging market equities worldwide.
MSTR’s situation isn’t much different. Its BTC acquisitions can be viewed as recurring value accrual denominated in BTC, warranting an earnings multiple rather than a simple mark-to-market valuation. If you believe the U.S. dollar is heading toward eventual hyperinflation due to rising national debt, the comparison to an emerging market exporter becomes even more relevant.
What justifies a multiple in the case of MSTR is consistent BTC holdings growth that outpaces share dilution. As often seen in equity market valuations, its multiple can expand over time as MSTR consistently delivers BTC earnings growth, reinforcing confidence in its execution. Growing adoption of BTC as a legitimate monetary asset – on par with other cash equivalents – would further support this trend. Our base-case valuation, which aligns with MSTR’s current market value, suggests this shift is already underway.
