Citi has downgraded MicroStrategy’s stock from “neutral” to “sell,” citing the company’s recent investments in Bitcoin as a major factor.
December 8, 2020, | AtoZ Markets – Shares of MicroStrategy fell on Tuesday by 13.9% after Citibank reportedly downgraded the business intelligence firm. Citi downgraded MicroStrategy’s stock from “neutral” to “sell,” citing the company’s recent plans to issue convertible bonds for $400 million to increase positions in Bitcoin.
New: Citi downgrades MicroStrategy to sell rec, citing concerns around plan to issue debt to buy BTC— Frank Chaparro (@fintechfrank) December 8, 2020
The bank says CEO Michael Saylor has been "largely removed" from his operational role while making appearances in crypto press. Also, management stock selling has topped 50m. pic.twitter.com/yadAxkoSOG
The investment bank noted an “excessive” rally in MicroStrategy shares and an increase in their sales by insiders. According to experts, this casts doubt on the success of the strategy announced by MicroStrategy CEO Michael Sailor for investing the company’s reserves in Bitcoin.
Experts suggested that plans to issue bonds could be the “last straw” for investors. The increased focus of the head of MicroStrategy on the first cryptocurrency could weaken the focus on the company’s operations and worsen the psychological climate of the team.
Citi said that the recent rally in MicroStrategy's stock was "overextended" + described its plan to raise $400m via convertible notes to buy BTC as a possible "deal-breaker for software investors." Management selling signals lack of confidence in bitcoin allocation strategy pic.twitter.com/J4eCU2B8Bt— Frank Chaparro (@fintechfrank) December 8, 2020
Along with the downgrade, Citi analysts raised the fair value of MicroStrategy shares from $200 to $250. The estimate is based on the Bitcoin price of $19,200.
At the close of trading on Tuesday, MicroStrategy’s shares could be purchased for $289.45. Since the disclosure of information on the first purchase of bitcoin for $250 million (21,454 BTC) on August 11 and until today, MicroStrategy shares have risen in price by 134.15%. The flagship cryptocurrency gained 53.9% in the same period.
In September, the company acquired an additional 16,796 BTC for $175 million. In early December, MicroStrategy made its third investment in Bitcoin for $50 million (2,574 BTC).
According to Bitcoin Treasuries, the value of the cryptocurrency that the analytics software provider acquired this year has grown from $475 million to $742.4 million. The current position profit is 7.8 times higher than the net profit from operating activities for the last year.
We will remind, in November, Citibank allowed the possibility of Bitcoin growth to $318,315 if the cryptocurrency manages to assert the status of digital gold in the 21st century.
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