Following the sharp drop in Strategy (MSTR) price, Cantor Fitzgerald’s Brett Knoblauf lowered his 12-month price target for Strategy (MSTR) from $560 to $229, citing the weak funding environment surrounding Bitcoin. BTC$90,977.49.
The new target still suggests nearly 30% upside from the current price of $180, and Knoblov maintains his Overweight rating.
Strategy’s business model has been to raise funds through the issuance of common stock, preferred stock, and convertible bonds, and then use the cash to purchase more Bitcoin. Flywheel has worked great for years, and MSTR has made impressive profits since purchasing its first Bitcoin in 2020. However, over the past year, investors have lost the appetite to value the strategy at a high premium for Bitcoin Stack. Coupled with Bitcoin’s poor price performance, MSTR has fallen approximately 70% from its late-204 peak.
Kantar currently calculates Strategy’s fully adjusted market net asset value (mNAV) of just 1.18x. This is still a premium, but it is down from much higher levels in the past. This prevents Michael Saylor and his team from raising capital through potentially dilutive sales of common stock.
As a result, Knoblauch lowered Strategy’s annual capital markets revenue forecast from $22.5 billion to $7.8 billion. The value assigned to Strategy’s treasury operations – how much potential upside it could capture from raising capital and buying Bitcoin – fell from $364 per share to just $74.
Still, Knoblauch hasn’t given up on the company. “This is an effect of both the lower Bitcoin price and lower multiples,” he said in a note on Friday. Although he sees the current market as a headwind, his overweight rating signals confidence that the strategy could work again once Bitcoin prices recover and investor appetite for leveraged exposure returns.
This view is echoed in another memo from Mizuho, which takes a more optimistic stance on Strategy’s short-term financial position. After raising $1.44 billion in equity, the company has built up enough cash reserves to cover 21 months of preferred stock dividends. Analysts Dan Dolev and Alexander Jenkins said this gives Strategy the flexibility to maintain its position without having to sell Bitcoin.
At a recent event hosted by Mizuho, CFO Andrew Kang outlined a cautious approach to future fundraising. He said the company has no plans to refinance the convertible notes before their first maturity in 2028, and will instead rely on preferred stock that will allow it access to capital while maintaining its Bitcoin holdings.
Kang also revealed that the company will only return to issuing new shares if its mNAV exceeds 1. This shows that the market is once again valuing the company’s Bitcoin exposure. If that doesn’t happen and it becomes difficult to raise funds, selling Bitcoin could be considered, albeit as a last resort.
The company appears to be taking cues from its 2022 strategy of pausing Bitcoin purchases during market downturns and resuming purchases once conditions improve. Analysts say this strategy of being patient and remaining liquid could help Strategy survive the current downturn.
Read more: Benchmark says strategy is still the best Bitcoin proxy, rejects ‘doom and gloom’ narrative
