Microstrategy a ‘Premium Valuation For a Low Growth Asset,’ – Jefferies
2022.07.26 23:10
Microstrategy (MSTR) a ‘Premium Valuation For a Low Growth Asset, – Jefferies
By Sam Boughedda
A Jefferies analyst downgraded Microstrategy, Inc. (NASDAQ:MSTR) to Underperform from Hold, maintaining a $180 per share price target on the stock in a note on software stocks Tuesday.
The analyst said app names will face a tough earnings cycle as they are yet to acknowledge macro headwinds, while their checks indicate weakening fundamentals due to macro uncertainty.
“We downgrade MSTR due to tougher macro and premium valuation for a low growth asset,” he wrote.
MicroStrategy, which is down over 10% Tuesday, has had a rough start to the year, with the stock down 50% in 2022, driven by bitcoin’s slide.
Jefferies believes MicroStrategy is a tale of two cities — bitcoin and core BI business. “We will be focused on the performance of the core business this quarter. We believe 49% of MSTR’s EV or approximately $2.7B is attributable to the core business and that MSTR’s core trades at 4.9x 2023E rev. MSTR is in the early innings of a Cloud transition, and we expect that journey to continue in Q2,” wrote the analyst.
“We’re downgrading MicroStrategy due to three main factors. First, we need to see improvement on execution. MSTR delivered a top line decline of 3% and billings decline of 11% last Q. Even though comps will ease this Q, we believe it will be harder to do large scale BI deployments in the NT given the tougher macro-environment. Second, execution surrounding the cloud transition has been sub-par. We note that current subs. billings growth decelerated to 18% in 1Q vs. 53% in 4Q. Our checks in the Software space indicate that migrations could be at risk given the uncertainty surrounding macro risk. Lastly, MSTR trades at a premium relative to comps.”
