MicroStrategy As A Levered Play On Bitcoin
In recent years, MicroStrategy, Inc. MSTR has emerged as a essentially a levered play on Bitcoin. Over the last year, for example, MicroStrategy was up 468%, while Bitcoin was up 105%.
MicroStrategy’s Bitcoin Balance Sheet Strategy.
What drove MicroStrategy’s outperformance is its Bitcoin Balance Sheet Strategy. MicroStrategy CEO Michael Saylor is arguably the world’s leading cheerleader for Bitcoin. After having turned his company into a machine for acquiring Bitcoin, he presented his strategy to Microsoft Corporation’s board recently.
The general gist of MicroStrategy’s Bitcoin strategy is this:
- Make Bitcoin the company’s primary treasury asset over cash.
- Leverage secondary share offerings and debt offerings to buy more Bitcoin.
- Use its underlying business to generate revenue to service the debt incurred to buy more Bitcoin.
- Attract Bitcoin enthusiasts as shareholders which supports the share price and facilitates secondary offerings used to buy more Bitcoin.
Maybe Another Company Can Do This Better
Last year, another company decided to adopt MicroStrategy’s Bitcoin Balance Sheet Strategy: Semler Scientific, Inc. SMLR.
Semler would seem to have a couple of major advantages over MicroStrategy, from an investor’s perspective. To start with, Semler’s core business is profitable, unlike MicroStrategy’s. You can see this in the comparisons below (the quantitative ratings are via Chartmill).
MicroStrategy:
- Bitcoin value as a percentage of market cap: 51.8%
- Overall fundamental rating: 2
- Profitability rating: 3
- Health rating: 2
- Valuation rating: 2
- Last quarter’s earnings: missed on top and bottom lines; lost money.
Semler Scientific:
- Bitcoin value as a percentage of market cap: 47.3%.
- Overall fundamental rating: 6
- Profitability rating: 9
- Health rating: 8
- Valuation rating: 5
- Last quarter’s earnings: beat on top and bottom lines; made money.
Another advantage Semler has is its current obscurity. We had never heard of the company until it appeared in our system’s top ten names last week.
Semler Scientific May Have More Upside From Here
We have positions in both MicroStrategy and Semler Scientific, but Semler may have more upside than MicroStrategy from here. Its stronger fundamentals and more recent adoption of the Bitcoin Balance Sheet Strategy may mean it has more dry powder to acquire Bitcoin relative to its market cap. It already has almost as much Bitcoin as a percentage of market cap than MicroStrategy does, despite having followed this strategy for less than a year. And if it becomes harder to raise money to buy Bitcoin, having a profitable underlying business means Semler Scientific will continue to be able to buy Bitcoin.
As more investors find out about Semler Scientific and compare it to MicroStrategy, it may become a higher-levered play on Bitcoin than MicroStrategy.
We shared our Semler Scientific trades with our subscribers last week. If you’d like a heads up when we place our next trade, you can subscribe to our trading Substack/occasional email list below.
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