Jefferies Downgrades MicroStrategy to 'Underperform;' Shares Slump

Business intelligence firm MicroStrategy (MSTR) is faced with a tougher macroeconomic backdrop and has a premium valuation for a low-growth asset, Jefferies said in a research report Tuesday.

The broker downgraded the stock to underperform from hold with an unchanged price target of $180. MSTR shares fell 7% in pre-market trading.

MicroStrategy is a “tale of two cities” – bitcoin (BTC) and the core business intelligence (BI) business, Jefferies said. The company now holds 129,200 BTC, and the investment is generating losses due to the fall in the bitcoin price.

Bitcoin now makes up 52% of the company's enterprise value (EV) at $2.8 billion, which translates to a $1 billion unrealized loss on a $3.97 billion investment.

The downgrade is due to three main factors, the note said. It will be harder to execute large-scale BI deployments in the near term due to the tougher macro environment, execution surrounding the cloud transition has been “subpar” leading to a decline in billings growth and the stock trades at a premium relative to comparable companies.

For the second quarter, the broker forecasts total revenue growth of 4% (more than the analyst consensus of 3%), non-GAAP operating margins of 13.6%, compared with consensus at 15.5% and a total billings decline of 6% compared with expectations of 6% growth.

MicroStrategy has been a “visionary” on BTC and has established itself as a “thought leader” in the industry, the note said, adding that management has increased leverage on its balance sheet and issued new shares for more bitcoin investment. Management is expected to provide an update on the company’s intent to continue to invest in BTC, the note added.

Read more: Michael Saylor’s MicroStrategy Purchased Another $10M of Bitcoin Over Past Two Months