Microstrategy stock confuses me a lot, maybe it confuses you too. The value of Michael Saylor's company is rising like a rocket. The increase in the last year is 730%, meaning if you invested $100, you would have made a profit of $730. With this performance, we will look at the details later, it is the best performing company on the stock exchange. Microstrategy is basically a software company. In fact, it is a very bad software company. Its turnover is constantly decreasing, its profit is also decreasing, but the value of the company is going crazy. Because the company goes into debt and buys Bitcoin from this debt. As the value of Bitcoin increases, the value of the company increases. Let's say that up to this point, it is normal. It takes a risk and invests in Bitcoin. When the value of Bitcoin increases, the value of the company increases, but the value of the company increases faster than Bitcoin.

We know that the company has 331,200 Bitcoins. If we look at the daily price of $98,000, this would be around $32 billion. However, the value of the company is 91 billion, meaning it is almost 3 times the value of the Bitcoin it holds. The company itself is not worth much money. Because it is a software company that is shrinking and its profits are decreasing. Then all of this value comes from bitcoin and it is worth three times more than the bitcoin it has. It is quite possible to call this a bubble. Frankly, I also thought the company was a real bubble for a long time. But now my view is changing a little. Behind this change in my view is the decision of financial institutions that I believe are smarter than me. These financial institutions are currently giving loans to Microstrategy with zero interest. In fact, it goes and buys new bitcoins with that loan. How do they provide loans with zero interest?

There is a financial instrument called Convertible Bond here. Microstrategy goes to the financial institution and says, lend me money but I will not give you interest, instead I promise to give you stocks in return for my debt. As of now, Microstrategy's stock is trading at $421. Microstrategy says to the other party, I will not give you money up to $672, zero interest, you can only get back the amount of money you invested. If it exceeds 672, if the value of my stock becomes $1000, for example, the difference between $1000 and $672 will be your profit. Because you have the right to go and sell your stock and when you sell it, the profit you make will be in your pocket.

It's a very strange deal. Because if you look at it from the perspective of the lender, Microstrategy is already a very expensive company, even if it becomes 50% more expensive, you can't make any money. However, if they go beyond that, you can make money and with this type of deal, they can now find billions of dollars in debt. We know they will find close to $4 billion in new debt. This is crazy and from a traditional financial perspective, this is the recipe for a bubble. But highly professional financial institutions, one of them is Fitzgerald, and by the way, Fitzgerald's CEO is now the Minister of Commerce in America. In other words, it is an important institution, it also has power in the state and that's where they went and said we are ready to give money to this crazy credit plan of Microstrategy.

So what's going on, is Microstrategy a bubble, is it worth investing in, is it dangerous? I will try to evaluate all of these with you. What I will tell you is not investment advice, I am a little confused about this issue anyway. But what I see is very interesting, when we look from another perspective, I will try to tell you that maybe Microstrategy is still cheap. Let's start with the traditional perspective first. We will take a look at the company's financials. Its turnover has come to 116 billion dollars quarter-on-quarter, well below last year and the downward trend continues. The company's gross profit is on a downward trend, the company is making a loss. It had a real operating loss of 432 million dollars in the last quarter. There is a loss from operations of 340 million dollars. The net loss is around 340 million dollars and the loss is growing. The company's balance sheet is interesting, it has 46 million dollars in cash. It has receivables of 115 million dollars. When we add up other assets, its short-term receivables are around 186 million dollars. But the long-term receivables are quite high, there is a huge number of 6 billion 896 million and it is growing, here is the Bitcoin stock of this company.

The report is from September, we estimate that he had around 250,000 Bitcoins in September. In this case, he has a Bitcoin priced at roughly 26,000 - 27,000 dollars. The reason why it appears as 6 billion 896 million is that in the USA, according to accounting rules, unless you sell the financial asset you bought, you cannot add it to your turnover and it remains on your balance sheet at the value you bought. In fact, if the price of Bitcoin falls below 27,000, let's go down to 20,000. Here, they have to reduce this value on the balance sheet and write off the loss. So when we look at it this way, this number is not real, the value of the Bitcoin in his hand is higher. He has 331,000 Bitcoins with the purchases he made since September 30th. His balance sheet equivalent should be 32 billion dollars. That number will be reflected here one day, when they sell it or the laws change in America.

There is a new Bitcoin-friendly administration in America, as you know. Lutnick, who was the CEO of Fitzgerald, is now the US Secretary of Commerce and they are very supportive of Bitcoin and they are trying to change the law so that companies can keep the Bitcoin they hold on their balance sheets at the current price. If this happens and the company continues to hold today's Bitcoin, even if Bitcoin is at today's price, instead of $7 billion, it will suddenly come to $32 billion. The company will suddenly write a profit of around $25 billion, of course, after paying taxes on it. It has such an interesting balance sheet.

On the other hand, the company is also quite indebted, $4 billion 211 million. These are the numbers as of the end of September, it has debt. It has continued to borrow since then. If I'm not mistaken, it currently has a total debt of around $8 billion. The maturity of this latest zero-interest borrowing is 2029, and the other debts are due from 2027 - 2026. But while its total debt is 8 billion dollars with the latest borrowings, the Bitcoin it carries on its balance sheet is around 32 billion dollars. If the value of Bitcoin does not fall radically below 26,000 - 27,000 dollars, the company does not actually have much risk of bankruptcy. But if it falls below that, of course it could get into trouble.

Now let's put the risk of bankruptcy aside. Let's focus on whether these numbers make sense as a valuation. The most commonly used method when valuing a company is to discount the free cash flows it will create in the future to the present. Unfortunately, this does not work at Microstrategy. Because free cash flows are constantly going negative. There is a negative cash flow of 1 billion 575 million in the last quarter. A small reason for this is the loss in the operation, but the more important reason is that it goes and buys Bitcoin with all its cash. As I said before, it can only show the cost of the Bitcoin it buys on its balance sheet. Since it cannot reflect the increase in value in Bitcoin on its balance sheet, its cash is constantly going negative. For this reason, we can say that the company's current business has no value.

The only value of the company is the bitcoins it holds and according to my calculations, if there are 331200 Bitcoins, this would be 32 billion dollars at today's price. The value of the company is 91 billion dollars, in this case the price is extremely high. For this reason, especially Bitcoin fundamentalists, or fundamentalists, say forget about Microstrategy, go buy normal Bitcoin. Here you are paying a premium three times over for the asset you hold, it is not worth it. Moreover, you are leaving yourself in the hands of Michael Saylor. Bitcoin does not stay in your cold wallet. Michael Saylor sells shares two days later, does other crazy things. He is a gentleman who has been involved in shady business in the past. He is someone whose company's accounting irregularities etc. have been revealed before. Why are you bothering with this and it is quite logical, frankly, it is a view that I largely defend. I had Microstrategy throughout 2023. I benefited from the rise at that time. But I am not part of the recent rise. Because as I said, this valuation always seemed excessive to me and I said why would I invest in this when I could just go and buy Bitcoin itself until I read an interesting article.

As far as I understand, Stony Chambers Asset Research is a research team that wrote an article published on Seeking Alpha. It received 492 comments. So it is also very controversial. Because while many people sell, sell very strongly, this guy bought and bought strongly. The article argues that Microstrategy is an investment bank and says that since it is an investment bank, it should be evaluated as an investment bank. Let's go into a little detail, the analyst's opinion is that Microstrategy is an investment bank with a single customer, that customer is actually Bitcoin. What do investment banks do, their customers come to them and say we have a project. We need money for this project. We will build a factory, do construction, etc. The investment bank goes and tells this story to the market. It finds the money from the market, deducts its commission, and provides this money to its customer.

Here, the customer is Bitcoin, but there is no commission in the company's income model. It is to keep that Bitcoin completely for itself. Therefore, Microstrategy says that the bitcoins it buys are actually its turnover. Therefore, when we look at the company's future valuation, we should look at the bitcoins in hand as turnover, not as value, and calculate the gross profit obtained from this turnover. I know it's a bit confusing, if we look at the tables, we will understand more clearly what I mean. If we look at the table of Microstrategy's Bitcoin purchases, the value on the date of purchase, the current value and the profit can be seen. When we look at it with the traditional valuation method, the current value of the bitcoins in hand should determine the value of this company. However, the market does not value the company accordingly, it values ​​it three times higher. This is what we can call a bubble.

This friend has another explanation. This friend says; since this is working like an investment bank, in this case, the income of this investment bank is the bitcoins it buys. In other words, it shows Bitcoin purchases as turnover instead of asset purchases. If it were a normal investment bank, we would write the commission income here. However, he says that this commission does not play, it buys it and keeps the bitcoin from there, this is its income, and we should calculate the expense of this income, he says. When calculating the expense, he put a cost of 15%. Of course, this includes the company's borrowing interests. If the company uses its own capital, there is the cost of that capital. And if the company issues new shares for these borrowings, there are dilution costs. When we put it all together, he says it has a cost of 15%. In other words, if the company has a turnover of 1 billion 86 million and bought Bitcoin, its gross profit is 923 million. If the company has a turnover of $529 million, that is, if it has bought Bitcoin, it will make a gross profit of around $449 million when we deduct 15% from this.

When we look at the last year alone, the company's gross profit from Bitcoin is 6 billion 166 million. Our analyst says that this gross profit is actually also net profit. Because all the company does is buy and hold Bitcoin, it does nothing else. There is no extra administrative expense here, maybe there are wallet expenses at most. The company is putting its own normal business aside anyway. In this case, we can also see this 6 billion 166 million as the company's net profit. So what should the value of the company be according to this net profit? What should the value of a company that has made a net profit of 6 billion 166 million in the last year be? If we think it is an investment bank, we need to compare it with other investment banks. He put Goldman Sachs, Morgan Stanley, JPM, Citibank, Bank of America as a comparison and says let's compare them.

When we compare, if we take the average price to earnings ratio of these banks as 15, if we multiply our 6 billion 166 million by 15, the valuation of 90 billion dollars starts to become quite reasonable. In other words, when we look at the company not only from the bitcoins in hand but also as an investment bank and look at the turnover of those bitcoins and the profit they create, the valuation is reasonable today. It's up to you to buy this idea or not, but if it is really priced like an investment bank, Microstrategy seems to have a long way to go. On October 31, Michael Saylor made a statement and said that we will issue 42 billion dollars more debt in the next 3 years. We will buy Bitcoin with the money that comes.

So far, they have only issued 8 billion dollars of debt and bought Bitcoin. This means that there is another Bitcoin issuance of 5 times that amount. This could very well mean that the company's value will increase 5 times more. Of course, the math may not work like that, the basic assumption behind this is that Bitcoin will always increase. If Bitcoin's rise stops, the company's valuation will also stop. Because when we go deeper, the company makes money from the difference between Bitcoin's annual average increase values ​​and the company's costs of accessing financing in an investment bank model. When we look at Bitcoin, it has been increasing by around 51% annually since 2017, if we take the graph back further, it goes to 150%. But it doesn't make much sense, Bitcoin was very small back then.

As long as the company can borrow at a cost below 51%, it means it will make money. In fact, analysts predict a valuation between 690 billion and 2 trillion for Microstrategy based on this. I decided to open a position in Microstrategy as well. I was long on Microstrategy last year, and this year I missed most of the rally. I opened a short recently, I opened it with good timing. I made some profit, but now I want to switch back to long. Of course, not with such a big purchase right away. Because it is a very hard-moving stock, with small purchases. Because this theory has a chance of being true. In other words, if many smart bankers and investment institutions are giving money to this company with zero interest, if they accept to make money only if the stock goes above $672, their maturity is around 2029, it can be tried.

In other words, a small investment, never a very big one, not leveraged, there are leveraged ETFS for this. But there is no need to get involved with them. Because Bitcoin itself is already leveraged. A small test can be done. The basic assumption behind this is that at the end of the next 3 years, the price of Bitcoin will be higher than today. It may fall and rise in between, but we need to look at where it will reach at the end of 3 years. When we see Bitcoin cycles, Bitcoin is generally an asset that moves upwards in 3-4 year frames. If it shows the same performance here, it means that Microstrategy stock will move upwards. But it is definitely a super risky trade.

I also accept that these calculations push the boundaries of traditional finance a bit. But if many smart-minded investment banks have entered this business, I think we can do it with a small experiment. Don't forget that there is definitely a big risk. It is never investment advice, it may be a more reasonable solution to buy Bitcoin itself, if you want to avoid risk, Bitcoin itself is already risky. In the context of all this, interpret what I have said yourself.

The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.