Analysts remain bullish on Strategy’s ‘turbocharged’ $84 billion capital plan to buy bitcoin

Strategy’s stock (ticker MSTR) is trading higher Friday after the bitcoin treasury company doubled down on its “21/21 Plan” with a new “42/42 Plan” to accelerate its purchasing of the world’s largest cryptocurrency.

Strategy reported first-quarter financial results Thursday afternoon, missing earnings and revenue estimates due largely to unrealized losses on its bitcoin holdings, its first earnings print reflecting FASB’s fair value accounting changes for bitcoin held on a company’s balance sheet.

On its earnings conference call, Strategy unveiled the 42/42 Plan under which it intends to raise a total of $84 billion — or about $42 billion each through common equity and fixed income instruments of capital through 2027 — to fund future bitcoin purchases. The company’s capital-raising target includes the $42 billion targeted by its initial plan launched last October, which has about $15 billion remaining.

“While the number of companies that have sought to replicate Strategy’s bitcoin acquisition strategy has continued to grow rapidly,” Mizhuo Securities analysts led by Dan Dovlen wrote in a note to clients. “MSTR yesterday issued a reminder of the extent of its first-mover advantage and how its ability to accelerate its accumulation of bitcoin has continued to increase as its platform has scaled.”

There are now more than 70 companies with some form of bitcoin strategy, though Strategy remains the faraway leader. The company owns over 550,000 BTC, worth about $52 billion at current prices.

“We continue to like MSTR as the most scalable Bitcoin vehicle tapping into large institutional pools unable to access Bitcoin/spot ETFs,” Bernstein analysts led by Gautam Chhugani wrote in a note.

Strategy reported a net loss of $4.2 billion, or $16.49 per diluted share, due to the FASB rule. Moving forward, the carrying value of Bitcoin will align with its market value, allowing Strategy to report any appreciation in bitcoin’s price as a gain in its net income.

“Management during yesterday’s earnings call emphasized that the significant swings in MSTR’s earnings resulting from the new accounting rules represented an improvement from the impact of the prior rules, which would distort the real value of its bitcoin holdings,” Dolev wrote.

Strategy will target a long-term leverage ratio of 20% to 30% through the issuance of fixed income securities, Chairman Michael Saylor said on the conference call, with the leverage ratio in the company’s case defined as the ratio of its total debt and preferred stock outstanding to the value of its bitcoin holdings.

“Strategy toggles between debt and equity based on market conditions, such that leverage remains within tolerance levels,” Chhugani wrote. “Further, liquid $54Bn Bitcoin balance sheet (no rehypothecation for yield) and on-tap equity ATM access ensures adequate liquidity to meet market conditions. Strategy’s annual cash interest expense stands at $185mn from convertible and preference shares cash coupon.”

Earlier this year, Strategy launched STRK and STRF perpetual preferred stock issues, and Saylor said Thursday the company will continue to develop and issue new financial instruments for raising capital. “He added that these new instruments would offer attributes designed to attract new investors based on their geographies, risk-return profiles, and other investing goals,” according to Dolev.

Mizuho reiterated its “buy” rating and $650 price target on MSTR. Berstein maintained its “outperform” rating and $600 target.

Strategy’s stock traded higher by 3.3% to $394.48 at publication time, according to The Block’s MSTR price data.

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