The software maker is becoming a total bet on the future of Bitcoin.

Microstrategy (MSTR 8.01%) have undergone a dramatic transformation in the last four years. Until 2020, it was a slow-growing analytics software maker that appeared to be losing ground to its more agile, cloud-based competitors. But that year, its co-founder and then-CEO, Michael Saylor, guided the company to make its first $250 million purchase of Bitcoin (CRYPTO: BTC). By the end of April 2024, its Bitcoin holdings had increased to $7.54 billion, which equates to about a quarter of MicroStrategy’s enterprise value of $30 billion.

MicroStrategy’s huge Bitcoin holdings have overshadowed the slow growth of its software business, but can it continue to grow and become a billion-dollar stock by 2030?

Image source: Getty Images.

MicroStrategy Valuation Is Tied to the Future of Bitcoin

MicroStrategy’s revenue has only increased at a compound annual growth rate (CAGR) of 1% from 2020 to 2023. Like many older enterprise software companies, its core on-premises software business is struggling to keep pace with analytics-based experts. in the cloud, like Sales forceanalytical tools integrated into cloud infrastructure platforms such as Amazon Web Services (AWS) and Microsoft Azure and niche mobile business intelligence companies such as Dome.

MicroStrategy has been expanding its subscription-based cloud services to offset this slowdown. Its subscription revenue increased 33% year over year in 2023, but the business accounted for just 16% of its revenue and was unable to offset the decline in product license and support revenue. As a result, its revenue fell 1% for the full year.

Analysts expect MicroStrategy’s revenue to rise at a CAGR of 3% from 2023 to 2026 as it expands its subscription services. However, that’s still an anemic growth rate for a stock that trades at 61 times this year’s sales.

It is clear that MicroStrategy’s valuation is clearly being inflated by the belief that its Bitcoin purchases will eventually pay off. But the impairment costs of these purchases made it unprofitable according to generally accepted accounting principles (GAAP) in 2020, 2021, and 2022. It finally turned a net profit in 2023, but analysts expect it to rack up even more annual losses through 2026. On the positive side, they project its adjusted earnings before interest, taxes, and depreciation and amortization (EBITDA) – which excludes much of this noise – will increase at a CAGR of 19% from 2023 to 2026.

How much will MicroStrategy be worth in 2030?

MicroStrategy paid an average price of $35,180 per Bitcoin through the end of April, so it is again at over 80% unrealized value on its holdings so far. It plans to continue buying even more Bitcoin, but has already increased its number of shares by more than 80% over the past four years to fund these purchases. Its total liabilities also more than quadrupled, rising from $913 million at the end of 2020 to $3.95 billion in the first quarter of 2024.

In a worst-case scenario, the price of Bitcoin could collapse before MicroStrategy’s subscription business grows enough to offset the decline in legacy revenue. If that happens, your valuation will crumble as your dilution and debt strangle your business.

But in a best-case scenario, the price of Bitcoin could rise and significantly strengthen MicroStrategy’s balance sheet. There are already many optimistic predictions for the future of Bitcoin: Cathie Wood of Ark Invest claims its price will reach $3.8 million by 2030, venture capitalist Chamath Palihapitiya sees its price reaching $1 million by 2040-2042 , and Fidelity says it could reach an impressive $1 million. billion by 2028-2030. If Bitcoin comes close to these targets, the value of MicroStrategy’s Bitcoin holdings could quickly exceed its enterprise value – and the company would suddenly become undervalued.

MicroStrategy more than doubled its total Bitcoin holdings between the end of 2020 and 2023. If it conservatively doubles its Bitcoin holdings again by 2030 and the cryptocurrency’s price reaches $1 million, its holdings would increase to $380,000. million dollars. Assuming your Bitcoin holdings still represent a quarter of your company’s value, it could grow into a $1.5 trillion company and generate a 50-bagger gain from its current prices.

There are easier ways to invest in Bitcoin

MicroStrategy has a narrow but viable path to joining the four-comma club by the end of the decade, but the bullish outlook is completely dependent on Bitcoin’s ability to go parabolic over the next six years. It is also unclear whether it will be able to continue diluting its own shares and taking on more debt to buy more Bitcoin if its price soars. So instead of investing in a struggling software company that is accumulating Bitcoin, I believe it is smarter to simply buy Bitcoin or invest in a Bitcoin ETF if you are optimistic about the future of cryptocurrency.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun has positions on Amazon. The Motley Fool has positions and recommends Amazon, Bitcoin, Microsoft and Salesforce. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The motley fool has a disclosure policy.

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