Microstrategy, a leading Wall Street software firm, has recently been hampered with a large impairment loss related to their substantial investments in Bitcoin. As a result, many have assumed a false impression of the long-term viability of cryptocurrencies. However, according to a report from Berenberg, one of Germany’s largest banks, there may be more to this story than meets the eye. In this article, we will analyze the findings of the Berenberg report and evaluate its implications for the future of cryptocurrencies.
1. Microstrategy’s Impairment Losses Misleading: Berenberg
Impairment Losses Overstated
Berenberg analysts believe that Microstrategy’s impairment losses are misleading investors. Many of these losses stem from the company’s shift from using cloud services from Microsoft Azure to Amazon Web Services, which in itself appears to be good for shareholders. The analyst firm concluded that what appears to be a write-down of $562 million is instead closer to $426 million, after accounting for the transition.
Additional Concerns
Berenberg also raised concerns about the high attrition rate of Microstrategy’s employees, which could lead to a decrease in the company’s morale, development and delivery of products. The firm cites a study suggesting companies with high attrition rates often see an increase in hiring and training costs, which could impact Microstrategy’s future profitability.
Next Steps for Investors
In conclusion, Berenberg encourages investors to question Microstrategy’s accounting treatment of these losses, and to look beyond these figures in order to get a full understanding of the company’s financials. Investors should consider the future financial implications of the company’s employee attrition rate in the short and long-term.
Additionally, they should remain analytical in their approach when looking at the firm’s growth strategy shifts, and the potential opportunities and risks associated with these changes.
2. Analysts Accusing MicroStrategy of Deceiving Investors
Analysts have accused Irving, Texas-based firm MicroStrategy of deceiving investors by deliberately concealing the risks of its investments. With approximately 91,000 available Bitcoins in its treasury as of late July 2020, the enterprise software company is one of the biggest Bitcoin-related entities in the world.
Among the top charges leveled against the firm are its lack of transparency, claims that it hardly disclosed or mentioned the volatility of Bitcoin or its concomitant risks to investors in its public disclosures, and the alleged rapid increase in Bitcoin utility sales by the company. MicroStrategy has reportedly raised more than $1.2B through such sales.
- Reluctance to Disclose Risks: MicroStrategy has been accused of manipulating the timing of its disclosures to investors, the form of the information disclosed, and its decision to portray the move as much less risky than it was.
- Price Appreciation Trade: The firm’s August 11th purchase of 262 Bitcoins has been criticized as a speculative strategy to take advantage of the Bitcoin surge in price.
- Insider Trading Accusations: The company has also been accused of insider trading; a complaint has been filed against the firm for allegedly acting on insider holdings.
3. Berenberg: MicroStrategy’s Bitcoin Exposure is Not as Risky as It Appears
Short-Term Price Volatility Masks Long-Term Profit Potential
Although shares of MicroStrategy have experienced considerable declines following its announcements of increased Bitcoin investments, the investment bank Berenberg sees potential long-term value in the strategy. In a recent investor note, Berenberg’s analysts suggest Bitcoin’s price swings over the short-term may be obscuring the tech company’s potential long-term profitability. The analysts explain:
- The firm has “unprecedented” access to the Bitcoin network and related services, owing to its scale and acumen.
- Recent cloud deals with Microsoft and Alibaba point to the company’s increasing expertise in the application of cryptocurrency.
- The firm’s diversified investments make it well-positioned to capitalize on Bitcoin’s future growth.
Berenberg also points out that although large-scale Bitcoin purchases may not pay off in the near-term, the long-term profit potential of MicroStrategy’s strategy is there. Analysts suggest that, if managed properly, increased Bitcoin exposure could generate enduring shareholder value and make it a key feature of the firm’s strategy.
MicroStrategy’s large bitcoin impairment losses have given a false impression of the market, however an analysis from Berenberg suggests that the loss is only a short-term impact which can be managed well by the company. Through their innovative approach to investments, MicroStrategy remains in a unique position to capitalize on further opportunities in the cryptocurrency arena. With this in mind, the long-term picture for the firm looks bright.