Citi Cuts MicroStrategy’s MSTR Due to CEO’s ‘Disproportionate Focus on Bitcoin’


Calling the recent rally “overextended,” Citi has downgraded MicroStrategy from neutral to sell in its latest report.

MSTR shares are up 168% over the past six months, climbing to a level not seen since 2000. These gains were made on the back of MicroStrategy's Bitcoin bet. In August, the company first adopted Bitcoin as its primary reserve asset, and last Friday spent another $50 million on 2,574 BTC. During the time, the largest digital asset has rallied a whopping 150% YTD.

MicroStrategy's commitment to Bitcoin turned the company and its CEO into a fully blown celebrity in cryptocurrency market participants' eyes. This also got Citron research short on the company to say MicroStrategy is the best way to own Bitcoin in the stock market.

It also had many wondering if MicroStrategy is a software company or a Bitcoin hedge fund. This raises concerns for the company as it will raise questions from regulators who refuse to approve a Bitcoin ETF.

And now, MicroStrategy's Bitcoin bet that has Citi getting bearish on the company, resulting in the company’s shares losing over 17% of its value in a single day.

Citi’s remarks came after MicroStrategy announced on Monday that it will be issuing $400 million convertible senior notes, proceeds of which will yet again be used to be even more BTC.

The price of Bitcoin also experienced a correction, which extended today. However, currently down around $18,000, a pullback has been expected after the recent rally from $10,000 to $20,000.

Analyst Tyler Radke sees “incremental risks to the story” following the debt issuance to buy more Bitcoin, which has been described as “aggressive” and possibly a “deal-breaker for software investors.” The analyst said,

“MSTR's bitcoin investment has returned $250M (or worth $26/share or +20% towards stock) since August '20. While impressive, it pales in comparison to the 172% return in the stock. At the current stock price, our analysis suggests that the market is pricing in much more optimistic valuation scenarios for the core business and Bitcoin.”

Radke further noted that the recent insider selling in MicroStrategy has been “significant and broad-based,” adding its shares may be overvalued.

The analyst also questioned Saylor’s “disproportionate focus on bitcoin.” Radke said,

“We are also concerned that the company could be losing focus on execution with CEO Saylor's disproportionate focus on Bitcoin vs. running the business and signs of deteriorating employee sentiment.”

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