Analysts at Citigroup say clients should sell MicroStrategy, throwing cold water on a stock that's seen its price soar following a series of bitcoin-related announcements this year.
The Wall Street bank downgraded its recommendation for the Virginia-based firm to sell — a move that came one day after MicroStrategy said it would double down on its recent bitcoin purchases by issuing debt to buy even more bitcoin.
In a note to clients that was obtained by The Block, Citi said that the recent rally in MicroStrategy's stock was "overextended" and described its plan to raise $400 million via convertible notes to buy bitcoin as "aggressive" and possibly a "deal-breaker for software investors."
Here's the bank (emphasis is our own):
"After the close MicroStrategy announced they plan to issue $400M in convertible notes to buy more bitcoin. While the magnitude of MSTR's initial bitcoin investment (~$450M), was essentially unprecedented, at least this was done with excess cash and at a lower price (~$11K vs. ~$19K). The issuance of new debt to fund Bitcoin purchases is aggressive and may be a deal-breaker for software investors, who may fear they now own a more risky asset management business."
The downgrade sent the firm's stock price falling — MicroStrategy's stock ended trade down more than 13.9% on Tuesday.
The announcement by MicroStrategy follows the news that that the company bought $50 million in bitcoin. Its holdings are now above 40,000 BTC.
Such moves have been driven by CEO Michael Saylor, who has become a darling of the crypto press for his vocal support of bitcoin as a store of value and inflation-hedge asset.
The bank said that the recent selling of the stock among management may indicate the firm's upper ranks are not onboard with Saylor's bitcoin mandate. Over the last two months, the firm has seen such sales top $50 million. The most outsized position was executed by President/CFO/COO Phong Lee, who sold nearly his entire position, according to the bank.
"Recent insider selling has been significant and broad based, and suggests shares may be overvalued, and that much of the management team may not be as optimistic on Bitcoin or fundamentals as Chairman/CEO Saylor," the analysts wrote, going on to say:
"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."